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

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."