It was probably inevitable that the stress being felt by a number of financial services companies is being leveraged by some commentators to criticise the planning industry and, in particular, those planners taking commissions.
The central theme of critics is that companies such as Queensland-based MFS Limited paid above-average commissions to financial planners and, by implication, planners were inclined to recommend clients into MFS-run funds.
At the time of writing it remained to be seen how, precisely, MFS would weather the storm generated by tightening liquidity and some less than flattering media coverage, including alleged involvement in some of the events that tended to taint the New Zealand financial planning industry last year.
There were suggestions from some quarters that the problems confronting MFS would lend weight to the calls from within the industry funds movement and some media commentators for the Commonwealth to legislate with respect to commissions-based arrangements.
However, the Government would be wrong to respond to current events with a legislative knee-jerk, especially in circumstances where the bulk of firms operating in the financial services sector and their representatives have not been guilty of inappropriate behaviour based on the pursuit of fat commissions.
Then, too, there is the fact that despite what they are saying now, the commentators were not particularly detractors of MFS, which was regarded as one of the faster-growing and more entrepreneurial companies and a major sporting sponsor.
Then, too, any search of the past activities of MFS will reveal that it was reputable enough to have been appointed by the regulator with respect to handling the affairs of other troubled companies.
Nonetheless, there is a message for the financial planning industry in the reaction of some commentators to the events surrounding MFS — the industry’s critics will use any opportunity to reinforce their arguments, particularly where they can point to the taking of higher-than-average commissions.
Of course, the jury is still out on the future of MFS and, indeed, the degree to which investors in that company were intermediated. The facts, when they emerge, may paint a somewhat more flattering picture of advisers.
Placed in perspective, the tightening in liquidity has impacted a number of previously reputable entities in the financial services industry, few of which had previously been identified by the media or anyone else as being problematic.
Commentators, unlike advisers, have the luxury of being wise in hindsight.
— Mike Taylor
