AMP's Blair Vernon warns the dwindling numbers of financial advisers is a problem NZ will sit with for decades

An AMP director is ringing the alarm bells over the diminishing number of financial advisers in New Zealand, as our population ages and the prospect of making sure we’ll have enough money to see us through our increasingly long retirements becomes more daunting.

With less than 1000 Authorised Financial Advisers (AFAs) currently practicing in New Zealand (according to an AMP estimate), its director of advice and sales, Blair Vernon, warns this dwindling number is one of the things we should be most alert to as we look to the future.

There are a further 800 AFAs who aren't practising, as well as 8000 Registered Financial Advisers (RFAs) who are less qualified and have to meet lower reporting standards than AFAs, according to the New Zealand Institute of Economic Research.

Vernon says there simply aren’t enough people to deliver the advice required.

He points out around 15% of AMP’s distributors are carrying Gold Cards, with this portion expected to jump to 30% by 2020.

“They are unlikely to be available to help New Zealanders… We have got to figure out the issue of supply but I see a very narrow pipeline of that for some time. It could be a 10 to 30 year issue given what we see in the industry and how many are about to leave."

A long term problem 

Vernon says the products or solutions to managing your money through your retirement are there - reverse mortgages, annuities or KiwiSaver for example - yet they all include a level of complexity.

“The most frequent sort of comment you hear from people who work in the adviser market [about their clients] is, ‘Will I run out of money before I run out of life?’ That’s where you need the advice component to come in.

“And I guess the challenge is, you can kind of build a product quite fast, but you can’t actually manufacture advisers. There’s a skillset and a technical knowledge, but there’s also just a straight level of experience that comes with time... This is a long-term problem.”

Vernon says that if you look at the industry for the better part of 15 years, there’s been little in the way of sustained recruitment.  

This has been exacerbated by the fact a number of advisers, when the Financial Advisers Act 2008 (FAA) regime came into play, were retrenched from giving investment advice yet could move into the insurance space.  

“You’ve got lots of people staying as RFAs and lots of people at the level of AFA who are thinking, ‘Why do I want the extra burden and challenge of staying in this market?’.”

The elephant in the room = commissions

Vernon recognises the way advisers generate revenue is a core part of the puzzle.

He notes the industry is going through a transition from being largely commission-based to being more reliant on fees from clients.

“The odd thing for the financial advice sector is it’s sort of survived on that [commission structure] for a large part and there’s a big transition now if you’d like to get to a model which is more about fee for service and ongoing fees for looking after a client’s financial wellbeing. And that’s a big change for advisers and clients.”

While AMP’s moving away from commissions, only spending 9% of its life insurance premiums revenue on commissions for example while most other insurers spend around 23%, the Government appears to have backed away from banning or capping commissions paid to advisers as it reviews the FAA.

“If commissions are in play, then really open transparent disclosure is a critical part of the puzzle. Commissions themselves aren’t necessarily damaging. When you don’t know the extent or value of them, that’s a problem,” he says.

“If you’ve got a profession that’s fundamentally commission-related, you’ll tend to find people who are far more transactional/sales orientated than long-cycle advice orientated.”

While Vernon believes commissions work well for the likes of real estate agents and car salespeople, he maintains taking a longer-term holistic view on a client’s finances should be paramount for advisers.

“Some advisers are quite successful in a straight fee to service approach… So the whole issue around commissions disappears. There are people experimenting with that already. There’s plenty of potential in that space.

“The question remains though, if we’re struggling to attract people to the industry, there are issues in terms of their perception of the remuneration for the effort required, versus other industries.”

Show me the money

“To put more people in the industry, there will have to be a greater pool of remuneration available.”

Vernon says the available revenue to support advisers has reduced over the last 20 years, as banks have started participating in the investments and insurance space.

“Secondly you’ve got the emergence of KiwiSaver, which is a much more economically efficient product for the client, but obviously has got much less revenue available for advisers.”

Vernon says the issues facing the New Zealand market aren’t unique, as regulatory change in the UK following the Global Financial Crisis has seen a reduction in advisers there. Australians don’t have particularly tight relationships with financial advisers either.

“There’s no single leaver. You have to see all of those dimensions - customers being prepared to pay, providers able to sustain recruitment and a pool of candidates ready to engage in that. It’s not a one or two year fix.”

The market only supplies what consumers demand

“It’s not simply a case of saying, ‘How come businesses aren’t recruiting more?’ The commercial response will play to where there’s revenue. And ultimately, most of the surveys you see say clients aren’t too keen to pay for advice. So therein lies the challenge.

“We have a wonderful DYI mentality… and it’s a bit the same with our financial affairs.

Furthermore, Vernon says people are prepared to pay for the here and now, but not their futures.

“How is it people are prepared to pay an enormous amount to go to a gym, but they aren’t prepared to pay almost anything to get some significant advice on their financial future.”

He too often encounters people nearing retirement, who haven’t put much effort into planning for their retirement in the past, so are looking for quick fixes.

They’re not looking for products or solutions, but for someone to sprinkle pixie dust over them he says.

“That’s a problem because that’s when we get people being susceptible to scams or other investment products that simply aren’t going to deliver.

“Unless we arrest some of that at a very early age, the reality is people aren’t going to have enough. It’s very hard to change your behaviour when you get to retirement if you’ve never adapted to your current budget. There are an awful lot of people who need help.”

Vernon admits the industry could do more to win the confidence of consumers, put off using advisers due to the blurred lines between their sales and advisory roles. This is another issue being addressed in the FAA Review.  

Robo-advice can’t change attitudes

Vernon says we will only know whether the rise of robo-advice will the plug the gap left by retiring advisers in time.

“Even if the tool was there today - and I would contend there are lots of tools - are people actually spending any time with them?”

He admits robo-advice will have its place, but this still requires consumers being organised and plugging sufficient information into advice programmes, to get the most accurate response.

“That requires a change in consumer attitudes.”

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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27 Comments

New Zealand does need to lift the level of it's financial literacy, but financial advisors and the industry frankly lowered it. I'm happy to see the end of 'financial advisors'.

We also have a lack of investment culture. Kiwisaver is a start as there are benefits to it and a lot of people see the funds outperforming their investment choices. There's a lot of room for improvement across the board.

I even talked to someone who is retirement age now and acknowledged he hadn't saved enough. People needing to work into retirement is an issue that's already here. The missing piece of the puzzle is that people have realised to retire now they need to own their own home, only to discover that they have no income generating investments.

I don't see enough articles talking about saving 15% of gross income (10% isn't enough unless you've researched your target). Somehow people think that 3% into kiwisaver with 3% employer contribution will sort them out for their retirement. That's half or less than half of what they'll need to maintain their lifestyle.

People don't even understand the 4% rule (even though that is kind of broken with low interest rates).

Where's the government education site explaining modern portfolio theory?

To an extent I don't care about the lack of financial advisers, I care more about the lack of mass education.

"lack of investment culture.." True but sadly you can't legislate culture.

I can't buy into the 'education would fix it' idea.

In the first instance, our young people spend more time inside the mass education system than any previous generation in all of history.

In the second instance, we live in the great information age, with unparalleled access to a vast wealth of information of every kind.

You can lead a horse to water ..

I know what you mean. I mean more articles just planting the seeds of the ideas. From research I've looked at actual financial education in school has zero impact on financial literacy. For exactly the reason you stated, you can't make them drink, they have to be ready and motivated to learn.

Getting articles out there to make people think about it. We can't save the world but we could improve retirement for a percentage of the population.

Exactly Dictator. Josephine and Joe Punter need to be putting that 15 -16 % away all their working lives. Which is the % figure Kiwisaver should be up to by now. I can't figure out why Bill English continues to neglect Kiwisaver progression. He's shooting the country in the foot, and a lot peoples foot as well.

15% is all well and good, but how much do they earn? Take the average wage, deduct tax, housing, food, and basic utilities - and I highly doubt you have 15% left over.

Yes you can sacrifice some luxuries. But if you have to give up everything you aren't really living anymore - you are just surviving.

dp

That's the problem thinking Noncents. It's not that you can't afford to do it, it's really that you can't afford not to. Kicking the can down the road don't work if you want to avoid old age poverty.

It's not problem thinking though - it's the reality for a lot of people.

Retirement is a relatively modern concept. Historically you worked until you either died, or your family took you in and looked after you.

The likelihood is that history will repeat in this respect.

Don't get me wrong, I am doing my best now to avoid that situation. Personally I think that 15% will give you maybe 5-10 years of retirement at best.

I am aiming for 40% of my income. But even then I am accepting that I will probably still have to work. My end goal is that hopefully I just don't have to work as much as everyone else.

dp

Disagree with you KH.......you're trying to sell a way to retirement without having to be made accountable at the other end!!

you might want to brush up on your own intellect, you say "lack of investment culture"...and in your next breath you mention kiwisaver...no one invests in kiwisaver people just save into it...the clue is in the name kiwiSAVER...

The clear answer is more regulation and administration.

You don't need a financial advisor to tell you that the only game in town is HOUSES.

The best thing about houses is that they are good for running a P lab. A true retirement plan so long as the profits don't go up in smoke.

A P lab can also be run out of the back of a good sized van.
I mention this only because I don't want to see the homeless excluded from this growth industry.

Who needs a financial adviser when you have plenty of free advice from helpful realestate agents.

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you are overlooking tulips, they are about to go gangbusters

I am sceptical about financial advisors even though I use one to buy and sell shares. If I had listened to them over the years I would not be in the position I am in now and I would not have been able to retire as young as I did. For a start as I would not be holding 1% of a major New Zealand public company. They still say I am not diversified enough as I have too much in one share but the proof is in the pudding as I say. It is a strong company and pays increasing dividends each year so why sell down. Thankfully I followed my gut and not their advice. Secondly I have often suggested a share and they said they didn't like it and they got it wrong more often than me. I look after my own shares, follow my own instincts and now override their advice generally. In a nut shell if you can look after your own investments as they do not always get it right.

Those advisors certainly annoy you when they say that they don't follow a certain share that you want but are quick to recommend others that you don't want.
For that reason I also buy and sell myself no questions asked.

No demand for financial advisors = not so many financial advisors.

They all took a course in real estate, and their clients think they're clever leveraged to the eyeballs with Auckland rentals.

That is retirement and all things finance sorted, mate!

If you want to understand the quality of "financial planners" in Australian owned banks then the following link is a good documentary.
https://www.youtube.com/watch?v=-xoZLzgH8pQ

The gravy train reached the terminal and the ticket clippers got off............

My first question to any financial adviser is the same
"If your advice is so good - why are you doing this job?"

As numerous other people have mentioned above - Those that have the cash to invest, are probably smart enough to research, analyse, and choose things themselves. Those that don't have the cash won't need a financial adviser.

a true financial adviser is not a get rich quick merchant, so hasn't necessarily made a million overnight on the stock market.
Perhaps they enjoy helping others achieve goals. Goals that are defined, and have a method to achieve them.

Your question is more relevant to FX system merchants.

Part of the problem is finding an adviser who is an adviser -someone who provides advice. They are not easy to find.

What is easy to find is a great thundering herd of ticket clippers who will not provide advice unless it is as part of a package paid for as a percentage of funds under management.

The advice is inaccessible without your money being sucked away at by platform fees, management fees, trustee fees, administration fees.

Where are all the customers' yachts?