KEY POINTS:
Yes, we're all agreed that the investment advisory industry in New Zealand is in shocking condition.
The succession of finance company crashes has prompted yet more hand-wringing, calls for investigations into what went wrong, and demands from understandably anxious investors wanting to know when they'll see their money.
It's become a scenario as familiar as it is tragic for those who stand to lose their savings. It's also, in my opinion, completely unnecessary.
I'm fully aware the reasons for the failures of investment companies in recent months are many and varied.
Sliding property values, melting global stockmarkets, honest mistakes and old-fashioned greed have all made their contribution.
But the simple truth is none of these disasters would have occurred had the investment companies involved, and their advisers, followed appropriate fiduciary standards.
The term "fiduciary standards" is a bit of a conversation stopper even in investment circles. Unlike terms such as "speed limit" or "blood alcohol reading" there seems to be only a patchy understanding of what the rules are, let alone whether or not one's own behaviour complies with them.
This is no doubt because, unlike speeding motorists or drunk drivers, there is no one about to enforce fiduciary standards on investment advisers.
Imagine what a difference it would make if, firstly, advisers were aware that fiduciary standards applied and secondly, that they could be pulled over by an enforcement officer and had to provide a fiduciary sample if they appeared to be managing their clients' money in an erratic way.
Surely keeping our investment industry safe is just as important to community wellbeing as keeping our roads safe.
It's perhaps worth mentioning that there should be no great mystery about fiduciary standards. These are not a matter of opinion or taste, but are global standards defined by the Centre for Fiduciary Excellence or Cefex (www.cefex.org).
Anyone can download them from the website in a couple of minutes. And country-specific applications are published by Fiduciary 360.
Key areas they cover are matters like avoiding conflicts of interest. How many of the recent disasters we've seen would have been averted if this standard, alone, had been applied? All those so-called "investment advisers" who are, in reality, nothing more than salespeople for property developers, would never have been allowed anywhere near investors if they'd tried to achieve certification first.
Then there's the requirement to diversify assets according to the specific risk/return profile of a client. Once again, hardly an encumbrance to any legitimate investment adviser who would implement this policy as a matter of course.
But how many investment company failures in recent times have effectively invested their clients' money in single asset classes while promising a fixed rate of return, thereby creating the illusion of security while implementing a strategy which is anything but secure?
Similarly, the "one size fits all" approach is a hallmark of the most idle form of financial planning, typically one which is more interested in pocketing its commission than in genuinely helping clients manage their wealth.
Its prevalence is as unfortunate as it is avoidable. If Cefex standards were implemented, we would not see large client groups shunted into flavour-of-the-month investments, but instead, a variety of asset types to suit each individual.
These are some of the key areas covered by the fiduciary standards I would like to see implemented across the investment advisory industry. Such implementation could be carried out in different ways.
And while the parallels with driving safety suggest a more robust regulatory regime, this is not the only way, or even the best way.
We need only look at countries with much more regulated industries to see that regulation, in itself, can't prevent the worst from happening. Investors in schemes run by the late MFS Ltd or Westpoint will soon confirm that.
A preferable way would be the combination of voluntary Cefex certification with a public education campaign.
If retail investors became aware that investment safety was just as important as road safety, that some "investment drivers" were more serious about this than others, and these could be identified by the presence of Cefex certification, we might start getting somewhere.
In summary, if we want to turn the investment advisory "industry" into the investment advisory "profession", it's time we introduced proper qualifications - and told the public about them.
Fortunately these qualifications already exist. What's needed is the incentive to implement them - and to make their existence widely understood.
Only then will we be able to travel the investment highways and by-ways without constantly wondering about what horrors are lurking around the next corner.
John Atkinson is chief executive of Plan B Wealth Management in New Zealand.
