Chris Lee is one of those characters many in the industry love to hate. However our survey of advisers show that many follow his research and comments on finance companies.
I find it is useful to observe his comments. Some seem good, but others I can’t agree with.
In saying that I fully support comments in yesterday’s newsletter re Interest’s SQP scoring system. Regular readers will know that I have never been a fan of this system. I would go so far as to say it is one of the most irresponsible things I have seen in the financial services industry in my 20-plus years covering it.
And no my comments are not personal, nor sour grapes. I just think it is an incredibly shallow, misleading and useless tool. I know people have taken the rankings to be ratings and made investment decisions based on that information – and lost money.
What was pleasing in our survey was that it appears very few advisers take notice of SQP. Rather their emphasis is on the big international companies; Standard and Poor’s and Fitch.
The rating question is becoming a bit of a vexed one as it appears the Ministry of Economic Development is hell-bent on only allowing the big international agencies be the providers when mandatory ratings of finance companies come into effect.
There is absolutely no doubt they have the skills and experience, but I do wonder whether some of the smaller, more local organisations like Bondwatch and Axis, should be considered. Neither of these are perfect, but I am sure they could develop and be refined. One thing I like about Bondwatch is that it covers a good proportion of the market and it tends to pick up trends. Axis rates fewer companies and potentially it drawback seems to be that its ratings appear a little generous.
Recently I listened to Marac’s Brian Jolliffe and he expressed concerns about some of the raters, particularly that they were making their decisions on old historical information and without talking to the companies.
They are good points and I would like to see a good local rating company, which was “kicking the tyres” of the companies and providing reports. At the moment much of the rating information is just a rating and no reports. While S&P comes out has the most popular in our survey, it only rates a handful of companies (UDC, Marac, South Canterbury, Geneva and the banks) and I very much doubt anyone has read their rating reports.
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I have to agree at the basic "farce" apparent in "ratings" re finance coys in NZ.
To have a ratings coy assess a finance coy on often very historical data plus to not even have visited the companies for a "chat" is bizarre.
I had one of the failed companies in one of my buildings and recall a couple of years ago that their whiteboard showed their bad-debt arrears had slipped above the accepted sort of "benchmark" that finance coys tended to use, being 10%.
One of the comments from them was, "could I consider doing some of my seminars to help get some more funds into their coffers to help water down the bad debt ratio...!!!?"
This was clear to me that the attitude of those companies that failed was that they had "sort of lost control of the reins somewhat" and the heirarchy were encouraging their (usually outlying centres) broker/lenders to get loans out, virtually at all costs (often to say vehicles "sight unseen) and with "no recourse on their commissions..!?"
That has been the gradual problem.
The outlying lender/brokers virtually having lots of pressure to get loans done, and obviously without the normally expected prudence required..!
A colleague & I have noted this factor with 3 of the few who have failed in the last year or so, and we noted that fact way back more than 2 years ago, but not suggesting to be a know-all.
The obvious problem now of course is that commentators are often painting a worse-than-necessary picture of many of the existing finance coys who run a relatively tight ship ( those who chase up bad debts, instead of just watering them down with new funds...!!)
There are also finance coys out there who tend to fool investors with their posted deposit rates.
Many times, the unknowledgeable are enticed to invest into those finance coys who "pretend" somewhat to be conservative lenders because they post relatively lower deposit rates..!
How difficult do people really think it should be to analyse a finance coy book say even only on a 1/4ly basis (or even bi-annually)..?
Life, in my opinion, does not really need to be as complicated as some pretend it needs to be..?
My opinion, for what it is worth...
Michael