New Zealand’s investment advice market is stagnant and may even be declining, according to a report published this week.
AFA today, authored by financial services journalist David Chaplin, found only 1895 New Zealand advisers were qualified to deliver complex financial advice, down from almost 2000 in 2012.
Under the New Zealand financial adviser legislation introduced in 2008, all those who give advice to retail clients on “category one” products (principally, investments) must be registered as an Authorised Financial Adviser (AFA).
AFAs must comply with a code of professional conduct that requires, among other rules, higher educational standards than advisers who deal only in “category two” products, which includes life insurance and mortgages.
The report, which categorised all registered AFAs, also found that collectively banks, stockbroking firms and AMP controlled about half of the market.
Less than 30 firms, most of which were large financial institutions, housed more than 10 AFAs, with 416 advisers classed as “self-employed”.
Furthermore, the study found 510 AFAs, or almost 27 per cent, were primarily insurance-based rather than investment specialists.
While insurance-only advisers are not compelled to be AFAs, the report says many have probably opted in to the higher standard “in order to deliver KiwiSaver advice – a natural add-on service for many insurance advisers who may previously have advised on retail superannuation products”.
KiwiSaver, New Zealand’s quasi-compulsory retirement-savings scheme, is classed as a category one product. Earlier in August the committee governing the AFA Code floated the idea of creating a KiwiSaver-only class of advice to encourage more advisers to enter this sector.
In total, the AFA today study identified only 129 advisers, or 6.8 per cent of the market, who operated within non-aligned advice groups – analogous to independently owned dealer groups in Australia. The largest in this category, Share, with 34 affiliated AFAs, is chiefly an insurance-based organisation.
Excluding insurance-based and other miscellaneous AFAs, the report found only 1264 New Zealand advisers were investment-focused.
“Outside of the banks and brokers, there were 520 investment-oriented AFAs, as defined in this report,” the study says. “Of those 520 AFAs, 195 were owned or affiliated with financial institutions, leaving a subset of 325 possibly non-aligned investment advisers,” states the report.
“‘Independent financial advice’, which investors are often encouraged to seek, is clearly a rare commodity.”
Read the full report here.
