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Fascinating Provincial questions

Monday, June 5th 2006, 9:51PM

by Philip Macalister

The Provincial Finance receivership raises some fascinating questions along with challenges for financial advisers.

This is probably the first finance company failure where advisers have recommended the products of the failed company. (I assume no adviser had used National Finance 2000 - if they did well.....). I make this Provincial assumption as they have sponsored FPIA Conferences (including this month's one) and are, I understand, a partner to SIFA. (SIFA has partners not sponsors now!)


It will be interesting to see how advisers handle the fallout and whether anyone will take action against them.

As this is the second recent finance company failure it raises the question of how do you pick a finance company?

Before moving onto some observations it is worth noting that this is a question the Herald's The Business section tried to answer today.

I spoke to them about prudent diversification and owning a bunch of finance companies rather than one or two. These comments were twisted somewhere along the line and my prudent diversification point was described as Russian Roulette! Let me assure readers that is not what I said and I will be asking the paper for an apology and correction as it implies something I did not say.

The diversification point is interesting in this case as it appears from the numbers the average investment in Provincial was around $23,214 compared to $12,500 for National Finance 2000. The assumptions being that the latter appealed to smaller less sophisticated investors (TV ads, high rates etc) while many investors had significant portfolio allocations to Provincial.

Coming to the question of how do you pick a finance company I proffer these thoughts.

Think about the endorsements a company uses. Provincial used All Black legend Colin Meads and his wife to endorse the company in telly ads, with a comment (something) like.... "For my money, I couldn't do better than leave it with Provincial".

The question is what does Colin know about financial accounts which would make you feel comfortable with the investment? I bet he doesn't now.

Secondly research. My firm belief is that you should only take notice of ratings from reputable, experienced firms like Standard and Poor's, Moodys and some of the other firms which have proven expertise in this area (FundSource, Rapid Ratings and Grosvenor have expertise). As an aside on this topic, I wonder whether Provincial is one of these companies who sought a rating from Rapid Ratings, but then decided not to publicly release it?

The ranking systems like the one which gave Provincial an ABA rating should be ignored at all cost. This collapse illustrates this.

Any adviser who has used this system to make investment recommendations is a mug. Ditto punters.

I have been on record before as saying these systems are more dangerous to investors than helpful.

It is interesting to note that the ratings provided by Grosvenor (G6) and Chris Lee (C) are more realistic of the risk involved with investing in this company.

There is a high risk that advisers who recommended Provincial will suffer a loss of reputation and potential loss of clients. Not exactly a great outcome for the industry as a whole, especially with bureaucrats looking for reasons to regulate the industry.

I would love to hear your thoughts on this topic. Please email them through to me at Blog@goodreturns.co.nz


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ANZ 8.64 ▼7.84 ▼7.39 ▼7.25
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BNZ - Classic - 7.29 6.85 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
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BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼7.09 - -
Co-operative Bank - Owner Occ 8.40 ▼7.29 6.89 6.75
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Co-operative Bank - Standard 8.40 ▼7.79 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.85 6.59
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Kainga Ora 8.64 7.79 7.59 7.29
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.35 6.89 6.75
Liberty 8.59 8.69 8.79 8.94
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Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
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Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.95 7.45 7.29
SBS Bank Special - 7.45 6.95 6.79
SBS Construction lending for FHB - - - -
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SBS Unwind reverse equity 9.95 - - -
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TSB Bank 9.44 8.19 7.55 7.55
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TSB Special 8.64 7.39 6.75 6.75
Unity 8.64 6.99 6.85 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.45 7.37 6.77

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