Finance companies is the theme I was am going to start the year with. Originally I toyed with the idea that maybe we should rename the survivors in this sector. Instead of calling them finance companies – such a tainted name now – that we could call them something like non-bank deposit takers.

Not a particularly eloquent name, I must admit. Then I thought about it a little more and figured that’s the role of a PR guru, rather than me.

Instead I have warmly welcomed the moves by some finance companies of offering non-guaranteed product to the market.

So far only Marac and PGG Wrightson have done so, but others, I hear, will follow soon.

It’s good for a number of reasons.

Firstly it shows you how much the guarantee really costs. This is something like 100 basis points. To my way of thinking it is far better the investor gets this rather than the government.

It also makes investors and advisers return to basics and think about the risk reward equation. It’s been too easy just to say take the company with the highest guaranteed rate.

Who needs an adviser to do that?

Advisers and investors should be researching any company they plan to invest in before giving them their money. It doesn’t matter if it is a finance company, a managed fund or a listed share. Do the research.

The challenge for advisers though is they have to start doing some work rather than take the easy option of saying to clients, take the guaranteed product.

At some stage the guarantee will go. The sooner the better as it just distorts the market, and encourages laziness.

My predictions that Allied Farmers would get its deal on Hanover through the vote today turned out to be correct. However it was a close, very close, call.

After hours counting the votes the key group voted in favour of the deal by just 0.4%. To succeed 75% of Hanover investors had to vote in favour of the deal. The biggest group, Hanover debenture holders said yes with75.4% voted in favour.

The meeting was far more sedate than the moratorium decision meeting a year ago, with fewer investors turning up.

It seems there was a bias in the audience. The anti brigade fronted. The acceptors didn’t.

I suspect part of the reason is that those who wanted to taste the shareholders’ blood are the ones who turned up.

They probably left dissatisfied as shareholder Mark Hotchin wasn’t involved in the meeting too much, and when he was he fronted strongly. Fellow shareholder Eric Watson did a no show leading to accusations he was a “shyster” and “chicken livered”.

What struck me about the meeting (except for how young I felt amongst all these investors) is that emotion over-rode intelligence.

Instead of baying for blood investors should try and be objective and look at the merits of the deal.

Allied, Grant Samuel and others have been straight up and said if investors take shares there is a strong likelihood (I’d say 100%) that the share price will tank in the short to medium term.

Also Allied Farmers MD Rob Alloway, while talking positively, acknowledged the Hanover book was a mess.

The outcome of the meeting swung on the knife edge judging by the performance of some players.

Here we rank how the key players performed – a little like how All Blacks get rated after a test match.

• Meeting chairman; Charles Darlow ; 6 – A solid performance like when he chaired the moratorium meeting. No nonsense, in control and organised. Let himself down by allowing “statements” at the end. Here a group of investors, most with scripted speeches, gave rousing performances extolling investors to vote against the proposal. These statements took the meeting to the knife edge. He shouldn’t have allowed them.
• Hanover chairman, David Henry, 2 – As he acknowledged he isn’t “an elegant speaker”. Ran the risk of putting all the old dears to sleep. His closing comments could have been stronger and more persuasive. Poor performance.
• Allied Farmers managing director, Rob Alloway, 7: Mr Nice Guy. Addressed most people by first name. Wore his heart on his sleeve. If anything too nice.
• Hanover shareholder Mark Hotchin; 8; Couldn’t believe he wasn’t involved in the meeting much until well into the second half when adviser Ton Watson challenged him to put in $20 million cash. Hotchin gave a passionate response, giving a frank assessment of how they first viewed the deal and why it was good for investors. Hotchin doesn’t like public speaking at the best of times, however necessity has seen him develop into a good speaker.

Reserves

• Hanover independent director Des Hammond – Didn’t have too much to do during the meeting, but kept the media at bay when they quizzed Hotchin in the stand up press conference while votes were counted.

Reserve Bank governor Alan Bollard made a remarkable comment at yesterday’s MPS/OCR announcement which stunned me.

He said that at the start of the year New Zealand was in a highly vulnerable position, facing much uncertainty and was surrounded by high risks. We were teetering on the brink.

All it would have taken to bring the country down would have been one irresponsible headline in the media.

Then he thanked the media at the press conference for being responsible and not triggering an economic disaster.

This showed how perilous things were at the start of the year. Secondly, the same couldn’t be said in regards to how the media have handled one of the other big business stories this year.

Those stories were about Hanover and the treatment of shareholder Mark Hotchin.

It has been quite stunning to see what has been happening in some of these investor meetings around the country. Read this piece at the Herald to see an example.

These investors are quite rightly and understandably upset and emotional.

But, in my view they didn’t get to this point by themselves. Their anger has been fuelled by the media, and in particular TV3’s John Campbell and Shareholders Association chairman Bruce Sheppard. The latter in particular has been a disgrace making ill-founded and incorrect comments on prime time telly.

Last night TV One’s Close Up presenter Mark Sainsbury signed off the show acknowledging comments made by Sheppard were false. The media should stop using these rent-a-quote, barrow pushing people as the voices in their stories.

I will defend Hotchin to the point that at least he has had the courage to front up in person to investors. Likewise he and fellow shareholder Eric Watson have come to the party and put additional money into the company, which they didn’t have to do.

We have seen first hand on Good Returns the sort of mob behaviour which has been fuelled by this sensationalist reporting. Some of the comments posted to stories have been unbelievable, highly emotional and in some cases threatening violence. We haven’t approved those comments and they won’t see the light of day. We encourage discussion, but we won’t be part of this orchestrated campaign of hate and vilification.

This whole public debate about commissions is so misguided it’s enough to drive one mad.

For the record, I don’t mind if advisers earn commissions as long as it is disclosed and customers have choice.

Also to get things clear, there are different remuneration structures for the various disciplines of advice, namely; investments, KiwiSaver, mortgages and life insurance.

I think the debate is only about investment products, however it seems that some commentary has included all financial products and services.

With life insurance I tend to agree that remunerating risk advisers on a commission basis is probably the default setting. If you take the argument insurance is sold, not bought, then a commission basis is fine; just disclose it.

Mortgages are similar. There is a slow trend to an advice model here and that is encouraging to see.

Investments are where things get interesting.

This whole idea about banning commissions seems to have come about due to the collapse of various finance companies and perceptions that advisers poured clients into finance companies because of the commission they were paid.

There is a slight element of truth to this. However the big over-riding fact which is being ignored in the debate is this:

The large majority of the money which went into finance companies that collapsed, went in directly from investors. This money did not get there through advisers.

By my reckoning, around a third of the money in collapsed finance companies came through advisers, yet they are getting 100% of the blame.

Banning commissions isn’t the answer. It’s investor education, as I argued here. Also it’s up to the product manufacturers to change the way they reward advisers and the regulators to make sure dodgy operators are closed down.

Yesterday I sat in on an AMP briefing about what it is doing with its advisory business. One of the interesting things was when CEO Jack Regan talked about the attributes needed to be a successful adviser. I won’t list them all, but what is worth noting is that the whole package was wrapped up by acknowledging advisers were sales people; the term used was “professional salesmen”.

Many sales people are remunerated on a commission, or partial commission basis, so why can’t advisers?

Another ignored point which bothers me is around share brokers. Hello, these people have been commission-driven salesmen since Adam was a cowboy. Do they get the same opprobrium as financial advisers?

Nope.

I bet if you looked at many of their portfolios over the past couple of years you will see some significant losses.

Apparently that is OK.

Very strange.

There will be plenty of naysayers telling Hanover investors why they should tip the company into receivership (most of them funnily enough with first names starting with B).

I thought I’d give you seven reasons why the deal will go ahead.

1. No one likes admitting to failure. Investors have shown they are reluctant to put a company they backed under. It’s like they are admitting they made a mistake. Remember the majority of investors who put their money into Hanover and United did it off their own volition – not through advisers.
2. They voted in hope for the moratorium and they will do the same again with Allied Farmers.
3. It’s a way of saying goodbye to Hanover shareholder Mark Hotchin and Eric Watson. Nothing like a public humiliation to make one feel better.
4. Instead they replace them with the new Mr Nice Guy Rob Alloway.
5. At least it’s a way out. Currently investors are stuck in the moratorium. They can’t do anything and it seems Hanover is pretty hamstrung too.
6. Allied Farmers needs the deal as much, if not more then Hanover. Remember they are the ones who initiated it. They need the capital and the size. Without this deal its future in the finance business is less than rosy.
7. Investors with a medium to long term view may well see the deal stacks up. Hanover’s books don’t look particularly good in the light of the today’s economic environment. But markets go in cycles and no doubt somewhere, sometime the picture could well change.

Sure I may be wrong, but hey even the Independent Report suggests receivership isn’t all it is cracked up to be.

Boy, the initial reaction to the Hanover/Allied deal was hostile from some quarters. I have to say I have been surprised by some of the comments aired over the deal.

Yes it should be no surprise to see some negative reaction, particularly as in some quarters it was portrayed as a get out of jail free card for Eric Watson and Mark Hotchin – and some tried to make a story that they personally were going to benefit.

It is good to see a range of comments, but please, no one listen to Bruce Shepherd. He made it clear last year what his views were on Hanover and it seems he is emotionally involved and not particularly objective.

Some of the things he has said are blatantly incorrect and designed to mislead. I said in a Blog ages ago that maybe it is time there was a change of leadership at the Shareholders’ Association, and recent events have reinforced that view.

After reading Paul Holmes’ piece on Sunday my eyes weren’t just rolling round in my head they had popped out of their sockets. This guy is someone people look up to and listen to. Surely he could have got his facts right first. He proudly admits to being totally ignorant about investment finance so maybe he should have steered clear of the subject or done some proper research.

Coming back to the Allied/Hanover deal. In days subsequent to the announcement the attitude and commentary has changed. I note Brian Gaynor’s piece in the Saturday Herald as one example.

That is good, as investors need to make intelligent informed decisions, not emotional ones.

This is even more important as trying to make sense of whether it is a good deal or not is difficult because it is so complex and we are still to see the details and fine print of the deal.

I’ve been leaning on the positive side  of it and if the story today, that another competing bid may emerge, suggests that the deal has some merit and may be the catalyst for a better one.

When the moratorium proposal was being discussed it seemed to me sensible that the Hanover loan book was managed by the company rather than receivers. However, that is partially wrong. All the good people in this area have left Hanover and the book probably isn’t being managed as well as it could be.

Having a new bunch of managers at Allied running the book and trying to manage it to successful outcomes is a better idea.

I prefer it to receivers. The view I expressed to someone recently was that if receivers got their hands on the book last year and tried to realise it investors would be lucky to get 20c in the dollar. The market’s been at rock bottom, there are no buyers, no finance and many of the Hanover loans are second mortgages which in this market are next to worthless.

Markets go in cycles and if the book can be managed through the troughs then some much better outcomes are likely.

Whether the deal will go through is a moot point as there are so many stakeholders. My guess is that getting it through the Allied vote could be the hardest.

At this stage it seems there are some winners, particularly the likes of Hanover Capital investors. The Allied shareholders seem protected; Allied Nationwide investors get a stronger company and that leaves the biggest group: Hanover and United debenture holders. They have to decide whether becoming shareholders in Allied is better than having, frozen Hanover debentures being repaid on a long, slow, drip feed basis.

With all the controversy of the advisory industry I thought it would be worth recording some thoughts on what is going on at the moment.

There is a feeling that any control or input advisers had over their coming regulation has totally disappeared.

Last week’s sacking of two advisers from the Code Committee affirms this notion strongly for me. Especially as there are no plans to replace them on the committee.

Also former AIA New Zealand boss David Whyte made a lengthy comment on the article last week which had some salient points.

One he made was any thoughts of co-regulation of the advisory industry are long gone.

He also made some very interesting points about the Consumer survey of advisers and why it was flawed.

There is a feeling the survey had a pre-determined outcome; if so it achieved them.

IFA president Lyn McMorran said in an email to members yesterday it used “sensationalist” – that no one would really argue with.

However I have also heard the language in the draft sent out for review and the final published work was vastly different.

With regards to the sacking of Patrick Middleton and Liz Koh, I’d have to say that the Commissioner of Financial Advisers, Annabel Cotton, has over-reacted.

One argument put to me is that if these two were forced to fall on their swords, then anyone associated with any of the firms which “failed” the Consumer survey should not hold high office. This argument would capture people like McMorran.

Clearly that doesn’t make sense; just like the Code Committee sackings make little sense.

I doubt many people had linked the Code Committee members with the survey and surely it would have been possible to defend them if the situation ever developed that far? Both are well-regarded members of the advisory community and no doubt provided valuable input into drafting the regulations.

You really do have to wonder whose interests are being served by the Consumer survey of financial advisers released yesterday.

The release had all the hallmarks of a well-orchestrated media campaign. Some key media were given special treatment and advance copies of the survey and interviews on radio and television were jacked up well before the official release.

All common PR tactics to gain maximum exposure.

What is hard to understand is why do such a survey of advisers now when the industry is on the verge of a new regulatory regime designed to help increase confidence in the sector?

The survey does the total opposite. It’s like spending money to fix an old washing machine when you are in the process of buying a new one.

Consumer is clearly using this to drive more sales of its magazine. As a publisher you know topics which will generate reader interest and sales. The womens’ magazines do this cynically each week with the celebs they put on the covers. We, too, know the sorts of topics which will generate reader interest and make sure we maximise readership from them.

The Retirement Commission’s role is questionable too. Surely it should be helping improve the advice sector?

Looking at its role, it was one of the funders of the survey and its response has been to use the survey to promote a new service it is about to launch. Have a read of its release here.

It looks like they don’t want people to use advisers, rather they would rather New Zealanders become DIY investors using its website.

Then there is the Securities Commission, who was another funder of the survey. Surely it too should be trying to move the sector forward rather than clobbering it?

The IFA wasn’t a funder, in fact it appears to have not had much involvement other than nominating a couple of advisers for the survey panel. Indeed it hasn’t, to our knowledge, put out any statement. The president appears to be unavailable. The CEO, who you would expect to front, doesn’t. Instead it is left up to the chairman – who happens to be the husband of the Securities Commission boss Jane Diplock.

The most interesting thing we have learnt from the survey is that Consumer chief executive Sue Chetwin lives with a sharebroker. Wonder what sort of advice she gets?

After a little absence I’m back! I wrote this post a little while ago as  it touched on a theme that had been on my mind for a while. Also once I started sounding it out on others I realised many agreed with the thoughts. As usual would love to know what you think.

My other little – pre Blog announcement – is that since Blogs had been a little thin on the ground I thought I’d add a Twitter account too. This way I can give you some other thoughts on things as they happen.

You can follow me at http://twitter.com/PhilMacalister

Now for the Blog! There is this view at the moment that adviser regulation is the answer to all our financial woes. Woes could stand for “when over-excitement strikes’ and examples include people losing money in finance company investments and dodgy property schemes like Bluechip.

Sorry, adviser regulation is not the panacea for preserving us from future ‘woes”. I support raising the standards and improving the quality of advice (and have argued overall it isn’t bad in New Zealand). The harder problem to solve is investor education.

No matter what the powers-that-be say about recent “issues” an underlying problem is people making dumb decisions to invest in dumb products.

I am a little tired of hearing about investors calling themselves “victims”. In many cases their woes are of their own making. They looked in the paper for the highest finance company rate and invested their money there. No advice was given. Things weren’t helped by unqualified self proclaimed experts providing ratings for these investments that may have given encouragement to the investor.

The recent case Bluechip court case makes the point the law isn’t there to protect bad investment decisions – nor should it be.

Now don’t get me wrong. There are things that can be done to improve the advisory industry (and make it a profession).

But if you are going to put an ambulance at the top of the cliff it is regulation of product manufacturers. Someone should be looking at finance companies, CDOs and these other non-mainstream offerings and making sure they are properly represented to investors.

Yes there should be an ambulance at the bottom of the cliff dealing with the dodgy investments and their fallout.

The curious point here is that neither of these are about the advice process; it’s at the product and regulation levels.

My biggest concerns are that advisers are held out as the scapegoats when there are others that are more culpable – mainly Mum and Dad investors who take no advice.

There are plenty of advisers who do a bloody good job for their clients. Yes, there are some who don’t do such a good job too.

But what is being proposed is going to drive good advisers away from the business and add significant costs to those who stick around.

Making it harder isn’t going to automatically produce the outcomes some want.

I don’t hide the fact I am pro- advice and think it is in an important part of the process.

If regulators and others want to fix the problem start with financial education. Punters are often their own biggest enemies.

ANZ’s move to acquire the 51% of ING New Zealand it doesn’t already own is no surprise to the market, Goodreturns.co.nz publisher Philip Macalister says.

ING’s Dutch-based parent company has signalled that it wanted to sell assets, meanwhile ANZ, particularly in Australia, needed to pick up speed in the important wealth management market.

The move makes ANZ the biggest KiwiSaver provider in New Zealand with just under a quarter of the market.

A comprehensive survey published by Goodreturns.co.nz this week compared the funds under management for all KiwiSaver providers.

(Read the survey here.)

ING is the most successful overall provider with a total 212,732 members and $523 million (as at March 31) across the four schemes it manages – the ING default scheme, ANZ, National Bank and SIL.

Many questioned whether the ING brand had been damaged beyond repair following all the troubles the fund manager had with its CDO-backed Diversified Yield and Regular Income funds.

In its announcement ANZ says it has negotiated the right to use the ING brand for 12 months.

“The deal today most probably spells the end of the ING brand in New Zealand,” Macalister says.

One of the biggest challenges for ANZ will be to win over the independent financial adviser market.

Currently ING distributes most of its funds and life insurance via the independent adviser market. ANZ doesn’t deal with this market and will need to learn how to manage it to be successful with ING.