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Advisors worry whether Kiwi retail investors in SOE floats will get access to advice, as govt sweetens deal with loyalty bonus

Posted in News Updated
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The government's drive to encourage small Kiwi investors to buy shares in Mighty River Power (MRP) has raised concerns among the financial advice industry about whether retail investors will get access to advice on whether to buy shares or not.

The concern comes as Prime Minister John Key says one reason for partially selling four state-owned energy companies is to foster more widespread share ownership in New Zealand and encourage Kiwis to diversify away from housing and fixed interest investments.

Milford Asset Management's Brian Gaynor told TVOne news on Monday night it was unlikely there would be enough financial advisors to cover the up to 200,000 prospective retail investors in MRP.

"There is no way that financial advisors in the major firms in New Zealand can spend an hour or hour and a half (consulting). It's just not feasible," Gaynor said.

Meanwhile, President of the Institute of Financial Advisors Nigel Tate told the NZ Herald he was concerned the loyalty scheme might encourage people to buy shares without taking their full financial situation into account.

Bonus

The bonus for Kiwi investors who buy shares in MRP might encourage tens of thousands, if not more, 'mum and dad' investors to buy into the company, Prime Minister John Key said on Tuesday morning.

Key announced over the weekend that initial New Zealand retail investors in MRP would receive bonus shares most likely three years after the company's partial privatisation this quarter. Institutional and foreign shareholders would not receive any bonus shares for their holdings.

The government has moved to make it as easy as possible for first-time buyers to purchase MRP shares, which will be able to be done without a broker, and either on-line or through retail bank branches.

While it has not been confirmed, it is also likely similar loyalty schemes would apply to the partial floats of Genesis, Meridian and Solid Energy, which are all set to come in the next few years.

It is estimated up to 200,000 Kiwi retail investors, many of them first-timers, will line up to buy shares at MRP's initial public offering. The government has set a NZ$1,000 minimum share parcel for MRP and said New Zealand retail investors seeking up to NZ$2,000 would not have their bids scaled back.

Roll up, roll up

Speaking on TV3's Firstline this morning, Key said the government was trying to build up widespread, long-term, share ownership in New Zealand through the partial sale of the four energy SOEs, and the loyalty scheme was part of that plan.

“The reason we want to do that is, we think it’s in New Zealand’s interest to diversify the holdings of different assets that New Zealanders might have," Key said.

"The vast bulk have housing as an asset, they may have a rental property as an asset, they may well have a fixed income bond or deposit as an asset. Not that many of them have shares. So we’d like to expand that and history tells you that diversification makes sense," he said.

The government was trying to build the concept that shares in these companies were "good things to potentially hold for a long period of time".

“Of course, [people are] free to sell them, and the loyalty bonus is just one element. If the price moves enough it doesn’t mean [the bonus] will stop them selling," Key said.

The loyalty scheme was one way of encouraging "tens of thousands, if not more, of New Zealand mums and dads to get in there and buy a few shares."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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24 Comments

"The vast bulk have housing

"The vast bulk have housing as an asset, they may have a rental property as an asset, they may well have a fixed income bond or deposit as an asset. Not that many of them have shares. So we’d like to expand that and history tells you that diversification makes sense," he said.
The government was trying to build the concept that shares in these companies were "good things to potentially hold for a long period of time".
 
Can I ask a stupid question - good for what? 

Financial Advisors having a

Financial Advisors having a big cry 'cause they're getting cut out of the loop more like. Would these be the same clowns that herded their client sheep into the finance company ponzi scheme?
And BTW, if they want something to bleat about, where's the financial advise to fifty somethings borrowing money to blow on overseas travel or some useless tatt. Non existant that's where.
Get a job parasites.

A shortage of 'advisors' 

A shortage of 'advisors'  True.  Given that we have so few real ones.  Most are 'salesmen'  oh and 'saleswomen'.

KH - if you anything about

KH - if you anything about  investment you would know that financial advisers (who are authorised to advise about the purchase of equities) are now required to be qualified and publicy registered as 'Authorised Financial Advisers'.  Go the FMA website - you might learn something.
This is a much higher test than in previous years - for the benefit of investors looking to buy shares.  And to a great extent,  it has culled the non-qualified from the advisory sector.

The Act requires the entity

The Act requires the entity that carries on the business to be registered.  Therefore if you are an employee of a financial services provider company you don't have to be registered unless you are offering certain financial adviser services.
 
Exemptions apply. Lawyers, chartered accountants, tax agents and real estate agents who only provide financial services in the ordinary course of their business do not need to register. For a full list of exemptions see section 7 of the Act.
 
Nearly 80% of all advisory services are provided by banks or their affiliates. The banks are registered. Not the employees. Banks are cross-selling product floggers.
 
I have asked this question here twice before. How do you find an independent advisor.?

iconoclast - go to the FMA

iconoclast - go to the FMA website,  and there is a list of AFAs (Authorised Financial Advisers) there.  They must provide disclosure to investors,  and that would indicate their independence or otherwise.  AFAs can advise on share purchases, not those with a lower level of qualification.
 

What's going on? There are

What's going on? There are only 43 registered and 28 of those have a forename of Aaron? Is that pure coincidence?

What??? I have just had a

What???
I have just had a look at the FMA website and there are 1,971 AFAs listed,  fortunately not all with the name Aaron!

oops. I must have got lost on

oops. I must have got lost on the web site. Couldnt find a list, so put in a search of "aa" as in say "acme" just to get to the list, and now realise it gave me a list of 43 names with "aa" in it

Reality iconoclast is very

Reality iconoclast is very few in NZ are prepared to pay for advice, hence there are very few independent advisors and those that are , are only interested in dealing high end.
In addition the government as such has driven the rules in such a way as to make it much more favourable to be a big player as they have deeper pockets if it all goes wrong. This is the cost of regulation.
The providers still have to follow the same processes as an independent advisor and there is now recourse if that doesnt occur or if the advice is seen as erroneous.
 
 

Actually Heathcliff.  I do

Actually Heathcliff.  I do know quite a lot about that.  However my view remains we have salespeople and very few real advisors.  Sorry.

More nonsense from KH. I have

More nonsense from KH.
I have already explained that we have just on 2,000 registered AFAs.  What do you mean 'very few real advisors'?  Perhaps you would like to define 'real advisors'.  Perhaps while you are about it define 'very few'. 
Perhaps you can also explain how much you do really know about investment,  rather than just casting ignorant aspersions.
On second thoughts,  don't.

Sorry heathcliff.  Your naive

Sorry heathcliff.  Your naive faith is adds to the concern.  Call them anything.   You could say "Registered Divine Creatures' if you like.  But --- still sales people.  

KH   "Your naive faith"?? You

KH   "Your naive faith"?? You are pathetic.

As a rough guide, I would

As a rough guide, I would define a real advisor as someone who didn't recommend investing in a finance company, offering only a smidgen above bank deposit rates, for multiple times the risk, to the general populace.
Of the 2000 you mention, could you please identify those who didn't.

Mr Key seeks to promote the

Mr Key seeks to promote the sharemarket industry - according to this story above.  Why would he do that for this tawdry sector.  They are largely con artists.  Manipulation is the norm.  Returns over the last twenty years have been nearly zero.  New Zealanders know this and have deserted the finance sector in droves.
Rather than incentives, the goverment would be better to clean up the industry.  New Zealanders would quite happily participate if the sector was honest, well policed, etc etc,

KH - If you are going to

KH - If you are going to contribute here,  at least try and tell the truth.  The NZX Top 50 Gross Index,  which measures the gross return of the top 50 NZ shares,  has grown 1450 points,  or 7.2%pa over the past ten years.
  "tawdry sector",  "con artists", manipulation" shows you know nothing about the operation of NZ's capital markets.  Instead,  you trot out meaningless insults which reveal the shallowness of your argument.

The people have voted with

The people have voted with their feet, on the financial industry.  ( well actually  - with their dollars)

Heathcliff, an excellent

Heathcliff, an excellent point.  The returns from the New Zealand sharemarket over the past few years have been pretty good despite the global financial crisis.  However, New Zealanders prefer to blow their money on finance companies etc.  With all the buzz about property prices at the moment I wouldn't be surprised to see a few people getting burnt in that market as well.

Uh no, when I see

Uh no, when I see commentators saying the SOE sales will add value to the gutted NZX you have to wonder just why you would play in it.
Then we have the 20min delay before you get to see the data and then the ultra fast connections that NZX has agreed to into its centre....all this gives some ppl a huge advantage....
Growth in the market does not show or prove good health and sound policies.
regards
 

Heathcliff: There is a simple

Heathcliff: There is a simple fallacy in your proposition that an index which has grown by 1450 points (how much? 50% ?) can replicated by an individual. Impossible. It is mis-leading. Hope you are not an Authorised Financial Advisor spouting that sales pitch. If you bought the shares comprising the Index as at January 2002 and held, where would you be today. You would have had to have bought the component shares in proportion to their weighting in the index. Having bought and held (no re-indexing allowed now, transaction costs kill it) where would you be today?. Question: how many of those original 50 components that you bought and held, have either gone, disappeared, or are no longer in the index? Is the apple you bought in 2002 still the same apple or is it now a lemon?

Most people go for a quick

Most people go for a quick profit and run. Short term thinking. See what happened to the local power board shares which were given away to the households. It wasn't so bad with Contact because people had to actually buy those shares. I still can't see why the protesters against this sale didn't start saving up their $1000 more than a year ago when it was first announced. Why wouldn't you save this money? Surely even those on the dole could do that over a year?
 

Councils also sold out

Councils also sold out quickly.If many had kept them, they coud be doing a lot better.
 
Isn't some partf of the dole and accom sup asset tested? If so, it would ahve made saving more difficult, not that the amount they get paid is much anyway.

One reason that "protestors

One reason that "protestors against this sale didn't start saving" is that the whole sale concept is just a stupid act of economic treachery and looting on the part of key and his mates and (assuming a few of those protestors think like me) those protestors are taking a principled stand against it, not colluding in the theft of our public assets.
Others may think something to do with nose and face and cut. :-)
The other reality is that there are a lot of people who are struggling, suffering declining real wages, who simply don't have $1,000 to spend and couldn't save it either.