New Service for Investors

A new "by investors, for investors" online service aims to fill the knowledge gap in the financial services industry by comparing the performance of investment advisers.

The service, known as Investment Advisers Performance Measures (IAPM), hopes that by providing better information about investment adviser performance, it can boost confidence in the investment advice industry. It is also about disclosure and transparency.

Currently, investors have no way of knowing how their investment adviser is really performing. Investors get a quarterly statement of results, but they cannot know how their own investment adviser is doing compared with others. Until this new service is available, there is no way for investors to find out.

Altogether we're talking about billions of investors' dollars, with no way of comparing performance or building trust. This may have significant implications for investment decisions and so for the wider economy.

A recent online survey on GrownUps found that consumers want to be able to access comparative information about investment adviser performance.

The survey found:

• 78% would like to be able to compare the performance of their own investment adviser against other investment advisers?

• 65% wanted more information about the performance of their own investment adviser?

• 100% wanted to know if their investment adviser was performing poorly when compared with other investment advisers?

• 96% wanted to know if their investment adviser was performing well when compared with other investment advisers?

• 74.5% would have more certainty and peace of mind about their investments if they had access to an independent and impartial report ranking their investment adviser against others?

• 52.9% were willing to provide data on the performance of the investments of their investment adviser in order to obtain a report ranking their investment adviser against others in their area?

For those who do not yet use investment advisers, the lack of information for investors is a major impediment to development of the investment adviser industry. Many potential investors do not use investment advisers, apparently because they lack confidence in investment advisers. Confidence is developed through knowledge about performance. Past performance as with any profession or goods or services is proof of quality or in this context competence. It is that proven competence which makes great investment advisers. Those investment advisers who believe they are top performers currently do not have a method of proving their good performance to their clients.

However it is reasonable for anyone to conclude that there are market forces which would prefer that the information is withheld from consumers and investors. The IAPM solution gives consumer investors the power to decide.

IAPM's solution is an online database, created with the help of consultants including Aon Hewitt Consulting Actuaries who have supplied financial formulae and have a continuing monitoring role.

The database allows consumer investors to confidentially subscribe and supply their investment performance data which is loaded by or under the supervision of a chartered accountant. Once this information is uploaded, a report ranking the performance of investment advisers is automatically generated and made available for viewing by the subscriber.

All confidential data areas are protected by login and password.

IAPM is pleased to announce its inaugural invitation to investors has started. IAPM is now seeking investors who are clients of investment advisers to visit the website www.iapm.co.nz so they can assess whether or not they wish to participate. IAPM is also inviting investment advisers who are top performers to invite their clients to join.

The survey shows that investors want this, and are willing to provide investment data in order to get peace of mind about how well their money is being invested.

In due course, investors who currently do not use investment advisers will have a means to reliably select an investment adviser with a proven track record thereby providing the required level of confidence.

Readers can view the website at www.iapm.co.nz.

Contact: Miles Hayward-Ryan, Managing Director.
Phone: 09 413 5355 or 021 960 816
Email: miles@iapm.co.nz

Questions & Answers

How much money is invested by investors who use investment advisers?

There are no definitive figures. A Reserve Bank statistics household survey report HC18 shows that about $32 billion is investment by NZ households. A significant portion of that will be under guidance of investment advisers.

How do you think the investment adviser industry will react to a performance comparison?

As a matter of courtesy, IAPM has notified all major industry participants. Brief discussion with bank wealth management indicates they are satisfied with their own strict controls. The governing Boards of the two main industry bodies IFA and SIFA have been notified. To date no official responses have been received. It is fair to deduce that their approach is wait and see. That really has to be everyone's approach.

What do you think will be the effect of this new consumer service?

Subscribing investors will be able to get an idea of how well their portfolio is really doing on a comparative basis. That is not possible now. In due course it will enable all consumer investors to see a track record and therefore develop more trust in investment advisers. This fits with Government goals of disclosure and transparency and enabling confidence in investment advisers to grow. Those with new cash wealth will have another avenue for consideration.

Do you expect many investors will stop using their investment advisers and go to other investment advisers?

The personal relationship is generally strong between investment advisers and their clients. So predicting the effect is difficult.

It is likely that most investors will be satisfied with their decision to use their current investment adviser, especially if that is with a bank or other large institution. It is just as likely that investment advisers themselves will seek the performance comparison ranking report results and will take action to improve results if there is a need.

A few investors will definitely be disappointed to find out they have missed out on significant gains simply because they went to the wrong investment adviser. Just who they are, nobody knows.

Over time it is likely more investors will trust investment advisers because of the performance disclosure and transparency so use their services.

How many investment advisers do you expect will be named in the IAPM Ranking Reports?

Subscribing investors will select regions close to where they work or live so the lists will be useful and not too large. Subscribers will be able to select any regions in New Zealand.

We understand there are about 1,400 to 1,500 investment advisers. We expect that all will be named in IAPM lists in due course. We do not know figures but guess each investment adviser may have from say 30 to 80 clients or more. Considering the survey results, the likelihood that one or a few of their clients will join IAPM at some point is high.

How much will it cost investors?

This is a consumer driven initiative. The annual fee is fully disclosed and transparent on the website so viewers can make a fully informed decision.

Annual fees range from $200 a year (including GST) for a portfolio under $200,000 to $600 for a portfolio over $1 million. That equates to 0.1% of portfolio value for a $200,000 portfolio, and 0.05% for a $1 million portfolio. Because the investor is paying for the service, it is clearly independent of any industry influence.

For comparison's sake, investment advisers charge about 1.5% to 2% while tax, depending on the investments, may be about the same at 1.5% to 2% of capital.

How accurate is the GrownUps survey?

Reducing from an initial 230 participants to 117 respondents for whom the issues were relevant, 56 persisted to answer questions. Of these, 56 persisted to answer required questions. Survey calculators available online indicate that, by one calculator 44 or by another calculator 53 respondents is enough to provide 95% accuracy.

About IAPM

IAPM founder and Managing Director Miles Hayward-Ryan previously worked as a corporate lawyer for public listed companies, before becoming a consultant in the superannuation field. He then became an investment adviser at the same time as developing a business helping start-up innovation and venture capital companies. That combination allowed him to see the need and opportunity to provide this new service for consumer investors.