FPIA needs to prove credentials

The Financial Planners and Investment Advisers Association (FPIA) needs to improve its structure if it is to administer a registration scheme for financial advisers, according to Morningstar managing di-rector Graham Rich.

The Financial Planners and Investment Advisers Association (FPIA) needs to improve its structure if it is to administer a registration scheme for financial advisers, according to Morningstar managing di-rector Graham Rich.

Rich says while he supports the idea of registration there is cur-rently no industry body capable of managing such a system with proper authority.

"The FPIA would be the obvious candidate but it would have to prove its credentials and not just have it handed to them on a plate," Rich says.

He says the FPIA meets some of the standards of a self-regulating body but has to develop much further, particularly in its organisa-tional infrastructure, if it is to meet them all.

"The FPIA hasn't even got a permanent executive officer which is es-sential if it is to be taken seriously," Rich says.

He says he has not aired his views before concerning compulsory reg-istration of advisers and expects his support for it may surprise many in the industry.

"From a pragmatic perspective I can see a value in having a reason-able structure in place," Rich says.

"The model I favour is mandated self-regulation similar to the Adver-tising Standards and Complaints Board, which is recognised by the Se-curities Commission."

He says such a system could fit well within the current disclosure regime that advisers already are obliged to operate under.

Control of the financial advisory industry through a central govern-ment bureaucracy, Rich says, is neither desirable nor likely to suc-ceed.

Support for some form of compulsory registration has been building in recent months following the New Zealand First Party floating the idea in April this year.

Head of the Investment Savings and Insurance Association (ISI), Vance Arkinstall, says registration is now likely to happen.

"It is essential that the ISI and the FPIA work closer together, es-pecially on the registration issue. We must close the door on this, we need a process which is acceptable and supports advisers while building confidence in the industry with the public."

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New Zealand is likely to face some form of capital gains tax by 2003, according to John Shewan, a leading tax expert at accountancy firm PriceWaterhouseCoopers.

He says no matter which political party wins this year's election by the time of the following election in 2003, a capital gains tax will probably be in place.

"Labour has indicated it favours a capital gains tax and will look at it in a review of the tax system, the Alliance want it and if Na-tional win the 2003 election I expect it will introduce it by 2004 as it recognises the need to broaden the tax base," Shewan says.

He says while he is not advocating a capital gains tax, and admits there are many problems in its implementation, it would even out some of the unfairness in the investment field.

"The irony from the fund managers' point of view is that a capital gains tax would remove unfairness between types of investments," She-wan says.

"There is a strong perception in New Zealand that you're better off to go it alone than invest with professionals."

Shewan is also highly critical of the tax treatment of retirement savings in New Zealand describing it as "shambolic".

"New Zealand should be ashamed of the state of its retirement savings taxation system. Investors and fund managers alike are in a state of dazed confusion and don't know what rules to apply or how to apply them," Shewan says.

He says the entire system needs a review and a clear policy direction put in place.

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Colonial First State Investments (CFSI) has managed to retain the bulk of investor funds following the rationalisation of its product range earlier this year.

The rationalisation saw six Colonial funds and all former Prudential products wound down as Colonial First State sought to move out of sector funds and take a more Australasian focus.

While the paring down of the product range was initially projected to affect around 7000 customers, the final figure was closer to 9000.

Investors in the now-defunct funds were given till August 10 to de-cide whether to change to new Colonial products or cash up their in-vestments.

However, the group has been granted permission by the trustee to con-tinue processing investor applications after August 10.

By the deadline close to 80 per cent of the $125 million invested in these funds had been transferred to other Colonial products.

Head of Colonial First State Investments in New Zealand, Bruce Abra-ham, says about $60 million of the total $80 million from the former Prudential funds was reinvested in the new range.

Investors in the six old Colonial products were even more enthusias-tic, with close to 90 per cent of the $45 million retained in the new funds.