Sparks fly between advisers

Friday, April 18th 2008, 3:34PM 23 Comments

by Philip Macalister

This week I have been fascinated by the goings on in the advisory industry, and some of  the things that make it look silly. It started with a statement from Commerce Minister Lianne Dalziel that the government was working with the Institute of Chartered Accountants to provide free advice to Blue Chip clients. I say good on both parties for doing this. I wish they could have done it earlier as it seems to me that many are preying on these Blue Chip "victims" and making money from their unfortunate situation. The obvious question the ICANZ/Govt release raised was how come the Institute of Financial Advisers wasn't selected as the partner? I don't know the answer to this question, however its release the following day seemed to suggest they were in catch up mode. But the story hasn't stopped there. None other than Chris Lee has added fuel to this little fire turning it to bonfire status. In yesterday's newsletter he ripped into the minister castigating her for supporting the IFA (when in fact it was the ICANZ she did a deal with). He says "minister Leanne (sic) Dalziel (is) urging investors to get their advice only from the very same groups who have so often misled investors." "Dalziel has consistently opted for the lazy solution, the one that will seem clean and tidy, and she has done so again in urging investors to go to the members of a selling group (in this case the IFA) as their means of obtaining good financial information or advice. "I will demonstrate in a minute why such a suggestion is lazy, facile and incorrect." He goes on to say that Dalziel thinks that "pretending that membership of a selling group, and reciting of academic mantra, is the certification of competence that an investor should seek to avoid problems" I have no problem with what Lee says about good advice, but  he  then launches into major criticism of various people which is factually incorrect in places, has incorrect name spellings and is vitriolic. I am in no way going to pass judgment on the named persons as it is unhelpful. Yes some of them have chequered careers. Some may have made poor decisions. But what is the point of tarring the whole advisory industry with the work of 10 individuals. Sure Lee does give some credit to other advisers (some IFA members, some not). He also is critical of the process that led to some of these people winning Financial Planner of the Year Awards. As the organiser of these awards I can assure you the process was rigorous. I give these people credit for coming forward and being prepared to be judged on their work. One of the named people - Mike Shaw (who has been having an on-going battle with Lee)  - made his position clear: This is part of his email: "Having read Chris Lee's latest Taking Stock, I hereby nominate Chris Lee for the position of President of the Marxist Financial Advisers Union. This is the Union for Advisers who think they are too  good to be members of every other professional financial advisory organisation in New Zealand. The bully Chris Lee has yet again thrown his considerable weight and ego around the confines of the email margins. As usual his research has got it wrong. Shaw has never been or aspired to hold the privileged position of President of any IFA chapter. Nor has Shaw ever had the wish or inclination to follow in Lee's footsteps and appoint himself baron of any kind of New Zealand territorial financial advisory fiefdom. Lee referred to his departure from General Finance in 1985. I wonder whether the door hit him on his ample behind on the way out or the back of the head resulting in convenient memory loss. It seems Lee has forgotten the reason he left. As this happened some 23 years ago it seems irrelevant to some, but for those there or near at the time I guess it is hard to let go. Lee talks a lot about no research or ratings for Bridgecorp. Has he conveniently forgotten the two favourable rating reports prepared by Ron Keene of Rapid Ratings latterly Axis Ratings? Has Lee also conveniently forgotten about the favourable Morningstar ratings reports for the ING funds? Is Lee asking for these reports to be ignored and passed into irrelevance? Lee also accuses Shaw of being out to discredit him. Shaw's view is that Lee is doing a fine job of that himself. What Shaw is merely doing is asking Lee some questions which Lee has extreme difficulty in answering so Lee reverts back to his usual tactics of being the school yard bully.
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Comments from our readers

On 18 April 2008 at 4:23 pm David Pine said:
Chris Lee reminds me of a favourite saying of my late Mother's:

"Empty vessels make the most noise".
On 19 April 2008 at 9:49 am Barrington Smythe said:
As usual people are shooting the messenger and ignoring the message. In the end it doesn't actually matter that Chris can't spell or that he may get some facts wrong (although it would help to know which ones if you're going to make that accusation). Given the recommendations that some of these award winners have dished out, the vitriol is not misplaced either.

If the IFA is happy to have people at the top of the organisation such as those he named, then what kind of organisation is it exactly? One that stands up for the highest ethical standards, or one that applauds the highest commission earners, and damn the consequences for the investor?

Canthese people honestly claim they were just following Axis ratings when they told clients that Bridgecorp loans were 'guaranteed by Lloyds', or that Bridgecorp was safer than SBS, or that the reason ASIC pulled Bridgecorp's Aussie prospectus was due to 'font errors', or that there was nothing unusual about Bridgecorp paying the MD (a former bankrupt) a salary on a par with Theresa Gattung, or that it was fine that Bridgecorp had several loans of more than 100% of equity, or there was no risk in a large percentage of the debenture book being funded through a very small number of 'financial planners'?? All of this was publicly available factual information, not rumour.

On the subject of ratings, why did a rating from a brand new ratings company with no history of successful or relevant ratings in fixed income carry any weight? Didn't anyone ask what the methodology was, or whether anyone from Axis had actually met with Petricivic (maybe over cocktails on his yacht)?

In any case, even if you use the argument that the Axis (or Chaston, or whoever) rating was an independent endorsement of Bridgecorp, why did many/most of these advisers direct 20%, 30% or in some cases 100% of client funds into one company? How can you support that as good advice? Why did all of them call any criticism of Bridgecorp 'rumours', or worse, the ramblings of the mentally ill? Who was right in the end - Axis or the Bridgecorp critics?

Why did NONE of the advisers named by Chris recommend UDC, Marac, or SCF? Did their 'expert' research find something wrong with these companies, or was it simply that these companies refused to pay 'uplifted' commission rates?

Of course, if these guys had made one honest mistake (Provincial) or even two (Bridgecorp), then maybe they would have got away with it. But what defence do they have for C&M, MFS, ING DYF etc etc etc?

If you think Chris is being a schoolyard bully, wait till some of the lawyers and their rightly vitriolic clients have their day in court.
On 19 April 2008 at 9:33 pm Philip said:
Thanks Barrington
A key point I was making is that the minister did not endorse the IFA (as Chris said). Rather she backed ICANZ.
That in itself is a move which must make advisers wonder about the merits or otherwise of the various associations. (Also it was a point I didn't intend to dwell on until Chris wrote his newsletter).
Chris hung his argument on an incorrect statement.
He was saying the minister was mad to back the IFA. Well she didn't so therefore his premise is flawed.
Two points worth picking up on - and useful ones - are these:
Did these advisers put money with the "good finance companies" such as UDC, Marac and SCF? Well we don't know. Something worth looking into.
Secondly, ratings are over-rated and misunderstood. We have heard a story that Bridgecorp paid something like $20 K for its AAA rating which if true is a terrible indicment on the so-called rater. My views on this are well-known.
It has become clear that advisers didn't do enough research on finance companies, and it also seems that they still don't do enough.
The issue of how and why money is allocated to various investments is fascinating. To add a new element to it, we understand ING (or its partners) were telling advisers they could allocate 30% of a client's portfolio to the (now-closed) DYF. That should get people going!
On 19 April 2008 at 10:51 pm Alan Robertson said:
So when I want proof reading I don't go to Chris Lee. Got that, thanks.
On 20 April 2008 at 12:54 am Peanut H said:
Barrington I am very surprised you think it doesn't matter that some facts are wrong. Do you also think history is written by the winners? I have news for you Barrington, facts do matter and the truth matters. If you want to learn something, I urge you to logon to the IFA website, select "Library", "Institute Documents" and at least read the "Code of Ethics". Then if you have a valid complaint and some evidence to backup your complaint, lodge the complaint.

Barrington, I also sense you have an alarming lack of understanding of the Rapid Raings (Axis Ratings) ratings process. You would have had to be hiding under a rock for a very long time not to have come across Dr Patrick Caragata. To assist you, here is the good Doctors brief CV.

Dr Patrick Caragata - Founder and Executive Vice-Chairman.

Founder and architect of Rapid Ratings™' software. Was Executive Director of Rapid Ratings™ (2006).
Managing Director and CEO of Rapid Ratings™ (June 2001 - January 2006)
Managing Director, CEO and minority owner of Rapid Ratings™ and architect of Rapid Ratings™' software.
Designed software tools for screening investments for venture capital and private equity companies, designed corporate governance and risk management systems (Risk-Cue.) for Boards in the non-bank finance sector
Author of five books (including Business Early Warning Systems: Corporate Governance for the New Millennium, 1999, Butterworths)
Author of Integrated Risk Management in Corporate Governance (A training program for the Australian Institute of Company Directors) 2005
Fellow, Australian Institute of Management.
Past career positions

Managing Director, McCallum Petterson Financial Diagnostics in New Zealand (1997-2001)
Chief Tax Policy Advisor and then special advisor taxation economics to New Zealand Inland Revenue Department (1991-1997) - Report on the Health of the Tax System (1997)
Chief Economist, New Zealand Ministry of Energy and then Energy and Resources Division Ministry of Commerce (1988-1991)
Senior Advisor, Investment Canada (Canada-US Free Trade Agreement, 1986-1988)
Senior Economist International at Toronto-Dominion Bank - head of the group producing country risk reports and exchange rate forecasts for 65 countries (1983-1986)
Manager International Policy with both the Canadian Chamber of Commerce and the Canadian Council International Chamber of Commerce (1981-1983)
Consultant for the World Bank (1994 in Sri Lanka on foreign investment), for the IMF (in 1995 in Albania on the underground financial markets), and for the Government of the Faroe Islands (restructuring and privatization) in Denmark in 1999
New Zealand Director, Tuvalu Investment Trust Fund, Australia, (Nov 1998 - March 2003)
Director, Turnaround Management Association, New Zealand (09/1998 - 09/2001)
Vice-Chairman of the Association of Political Risk Analysts in Canada (1984-86)
Qualifications

1981 - Ph.D. Political Economy, University of Toronto
1976 - M.A, University of Toronto
1973 - B.A., University of Toronto

Therefore in the future, please get a few facts together before you start rubbishing something - not that this seems to matter to you. I also urge you to read the latest (Axis Ratings) reports for St Laurence dated 16/9/07 and Strategic dated 20/9/07, then you might understand the methodology of a sound, robust and defendable research process.
On 20 April 2008 at 9:41 am Barrington Smythe said:
Well, I dunno Peanut - having a PhD in Political Economy and designing a software system to rate bonds (note, software, not common sense or management meetings) doesn't cut much ice with me. In the end, the Bridgecorp research was patently wrong, wasn't it?

For another insight into academics going into finance, look what happened when the Nobel prize-winning economists Myron Scholes and Robert Merton went into the investment business - Long Term Capital Management. I'm not for a minute putting Axis in that bracket, but nevertheless a it proves that a great CV is not a substitute for basic common sense and nose for bullsh*t.

If you read the disclaimer on Axis research, it say: 'A credit rating or composite risk rating is not a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any financial products. The rating is a statement of opinion derived objectively through our software from public information about the relevant entity.'

In other words, don't rely on Axis ratings when recommending investments to your clients, as the rating is purely derived from Prospectus and oter published financial information. So whilst your Doctor may have the greatest CV in finance, he didn't look Petricevic in the eye and ask some of the hard questions he should have been asked. End of story.
On 20 April 2008 at 5:18 pm James Symonds said:

Now I have no idea who this Chris person is and I have never come across this gumboot of a site before but I have been doing some searches about Geneva as this (and Bridgecorp but I managed to get it out when Rapid Ratings withdrew their rating with them as Ron Keene felt they weren't up to scratch) is the only finance company that I have my money with (thanks to an adviser, who was a member of the IFA, told me to put 65% of all my money with Geneva) so I need as much information as I can get in regards to Geneva's reconstruction. I have now had a read over many sites and read stuff and its business section everyday.
If Geneva was to have this mystery bidder confirm they would give me 90% of my money within a few months as opposed to drips and drabs over 4 years then I would vote for this over any deal (stuff the unsecured people who wanted the higher interest) as it wouldn't take me long to get it back to 100% of my capital and it is guaranteed as opposed to this whole maybe clause that your shares would actually be worth anything (who would by shares in a failed finance company?).
Then again it sounds like someone has 65% of all the votes so it isn't very fair.

Now the reason that I say this is a gumboot of a site is because I read on Stuff a while ago that Lianne Dalziel DID say that she recommends people to go to professional advisers such as THE IFA. So this whole blog is making a mockery of itself as it obviously does not do enough research before it speaks out too loudly. Perhaps there was more than one article and this Phil person did not see it? What a gumboot.

Oh and one other thing, obviously these reports from Morningstar and Rapid Ratings (before it was withdrawn) were completely wrong and they themselves must feel like a fool. I will never listen to an adviser nor invest in a finance company ever again. Especially not from the IFA from the sounds of it!


On 20 April 2008 at 11:49 pm Peanut H said:
Barrington, of course ratings are an opinion, just as your skewed view of the facts is an opinion. To suggest Rapid Ratings, Axis Ratings, Standard & Poors, Fitch, Moody's, Frank Russell, Lonsec, Mercers, Eriksons, Property Investment Research to name a few, don't rock up to kick the tires and look the CEO, MD or Chief Lending Manager in the eye is absurd and completely lacks creditability, a fact Barrington I suspect you already know.

Of course all the raters have several paragraphs of weasel words suggesting opinion, general nature, not fit for a particular need. However all raters have one thing in common they suggest the reader assess the appropriateness of the supplied information in making an investment decision.

Barrington you also state the Bridgecorp research was patently wrong. Which report or reports do you mean? was it the 2003-2004? or 2004-2005? or 2005-2006? or 2006-2007? or perhaps the whole lot? Given a choice, I would refer to believe a research report than Barrington's olfactory cells sense for BS.
On 21 April 2008 at 5:11 am Barrington Smythe said:
Sorry Peanut - I thought we were just talking about Axis, not S&P, Fitch, Moody's and the rest. You raised Dr. Caragata's massive CV as proof that Axis is a good rater. I'm just saying that I don't believe that a purely quant rating process will catch the likes of Bridgecorp or C&M or MFS as it only looks at the published numbers (which in Bridgecorp's case were probably not 100% honest anyway).

Axis clearly state in the disclaimer that they only use a software model and published information. No mention of meeting CEOs or lending managers. Perhaps it is you who has a lack of understanding about the Axis process, not me.

Basically all I was implying is that any adviser who uses an Axis rating as defence for putting over 10% of a client's portfolio into Bridgecorp is not going to get very far in court, especially if that is the only research they relied on.
On 21 April 2008 at 8:53 am Alan Read said:
Barrington Smythe - good on ya mate! I would love to discuss similar things, but just can't be bothered with defending myself to people trying to defend their flawed thinking rather than try and learn from bad experiences and strive to advance their abilities/lift their game to a whole new level.
On 22 April 2008 at 12:20 am Red Dog The pirate Guy said:
Now who was the poster who told me that we are amid a short term correction,yet today I read that Billionaire investor George Soros has called what we are in as the ''worst financial crisis of our lifetime.''
Carmel Fisher relaxes in her $8 million plus mansion,while on a recent trip to Aussie I am informed that they are considering processing kangaroos to provide mincemeat for the poor.
There are more than a few in the ticket clipping game with their backs a little to the wall at present,and defending each other as I would expect in a time of such unprecented crisis in my working life.
Alan Read's comment to BS reminds me of a comment made to a client of mine when he went to the offices of Money Managers to complain about his investment portfolio "If you don't like it's performance,take it all out''.
Thank goodness for BS and his streetwise evaluation of what is going on.
Alan Read would like to move on.
So would elderly widow AAA who has one million dollars invested in the ING Diversified Yield Fund,which is 100% of her portfolio[you don't need Colin Meads to tell her what a safe investment is]
So would elderly widow BBB who has $200,000 invested in Bridgecorp[Luckily only 25% of her portfolio]
Like many,I was intrigued to read in regard to the ING fund being frozen,the fact that there were trail fees of 0.5% paid to those selling those now frozen investment products.
The cat is now out of the bag with these disclosure statements which I congratulate the Labour Government for having made possible,and Joe Public,myself included,has finally found out that 1.0% trail fees are a compelling reason for financial planners to hold funds in certain ING/PPS investment funds,despite the returns being subpar.
It is notieable that the disclosure statements do not mention fees derived from some of the interesting companies already in difficulty,such as Bridgecorp and the MFS maze.
I note that Admin states that he does not see many portfolios.
I see plenty,and to see UDC and Marac as a component has been historically rare.
Apart from one broker who has a specific relationship with SFC and supports them reasonably well,I see little in most of the other portfolios.
For instance,I am looking at a $1.5 million portfolio which had $250,000
in Bridgecorp and nothing in UDC Marac or SCF.
Another one of $700,000 had $120,000 in Bridgecorp,$100,000 in Marac,nil in UDC,and $15,000 in SCF.A little strange in its ideology.
Admin talks about the status of IFA members helping BlueChip Investors.
My suggestion is to leave it to ICANZ to provide the assistance.
I have read Lianne Dalziel's address to IFA dated 8 April 2008.
She states as part of the address ''Why would you trust your life savings with someone with no professional qualifications or membership of a supervisory body?...Everyone in this room is a member of a professional body which has strong ethical standards,and which ensures its members are held to account....In the meantime I will keep repeating the need for investors to be wary of dealing with anyone who is not a member of a professional body that has the ability to supervise the competency and integrity of people whose role is going to get even more important as people diversify their financial investments.That means you have an important role going forward because you can ensure your members meet the standards that you have established to measure their competence and integrity,building a trusted profession guiding the investment that is critical to New Zealand's economic future.''
I conclude from that address that she is recommending IFA as a professional body which members of the public going forward,can have confidence in dealing with in regard to investment advice.
Chris Lee quite logically comes to the same conclusion as I.
We both conclude that she is recommending that investors will be able to have confidence in dealing with IFA members.
As Chris quite correctly points out,such a recommendation places the public into the hands of people who receive remuneration which is commission based.
Accordingly,as I have observed,such remuneration tends to lead to skewed advice.
New Zealand as a country has tended to try to cut down the tall poppies.
Chris Lee is one of those.
Both he,Barrington Smythe and my Italian friend are not part of an olde boy network ,and bring the truth to us.
I give thanks for that.
On 22 April 2008 at 9:21 am Peanut H said:
The language of haters and wreckers drips, oozes and sweats from these Blog comments. I'm drawing a line in the sand, I'm moving on, I'm getting over it, I'm not getting bogged down in the past, I'm past my flawed thinking, I've learned from bad experiences, I'm advancing my abilities, I'm lifting my game to a whole new level. I'm rolling out positive visions of the future. Alleluia brothers and sisters I have seen the light.
On 24 April 2008 at 12:58 am Red Dog The pirate Guy said:
Admin states in paragraph three ''I say good on both parties for doing this.I wish they could have done it earlier as it seems to me that many are preying on those Blue Chip ''victims'' and making money from their unfortunate situation.
The question is who are the ''many.''
I know I am not the only person who has noticed that the regular get rich quickly property investment seminars which have been flooding the country in recent years,often seem to have a link to favoured advisors in the accounting legal and finance fields.
It is all about relationships.
I recently happened to be talking to a solicitor in another district,and we were able to swap tales about he clients who had fallen under the spell of supposedly more expert advisors,and as part of acquiring a slice of the residential property market,just managed to accumulate another three companies,three trusts,and maybe another three trusts to come,a templated report with fancy wiring diagrams and a level of professional fees that resulted in a scurrying back to their local advisors.
I was talking to a banker in recent weeks who told me of the client who had bought ten houses,and had of course,ten LAQC companies.
I commented to the solicitor that it was a lesson on how to clip the ticket.
Unfortunately that solicitor tends to tell the truth,and when asked by his client as to whether he really needed all those fancy structures,he had to answer no.
The various Blue Chip offices seem to have been abandoned very rapidly.
Naturally there has been alot of discarded paper work.
I just happened to inherit a somewhat lengthy list of what I assume were ''prospects".
I have had a brief look at the companies website and am interested to see some "prospects'' have companies with registered offices at the same Auckland ICANZ practice's address as a large number of the BlueChip companies.
That same practice was intending to set up regional offices throughout NZ.
Indeed I would have expected that the vast majority of those in the BlueChip net would have sought taxation advice at the outset.
I am puzzled that there are so many who are apparently unattached.
I will investigate that further.
I am informed from one very reliable legal source and one very reliable civil service source that there are at least 100 and pehaps 200 people at a certain large industrial site in this area who are involved with Blue Chip.
I have been unable to find any solicitor in this area who has admitted to having effected any conveyancing for a Blue Chip purchaser.
That leads to the obvous conclusion that the legal work has been effected away from the prying eyes of investors' normal legal advisors.
I have no depth of knowledge in regard to the methodology or expertise of those who provide evaluations of various financial products.
Admin mentions Axis Ratings limited.
I note that this company issues a standard disclaimer which states that the credit rating is not intended to substitute for a financial advisor's or investor's independent assessment.
It states that the rating is a statement of opinion derived objectively through software from public information about the relevant entity.
The disclaimer in essence is the same that is affixed to any set of financial data which has not been subject to Audit or Review.
That in effect places the responsibility back on the company directors who have signed off the accounts,and the auditors.
How therefore is a financial planner relying on such a report,able to assess that Bridgecorp had 69 loans,with only 9 on first mortgage,15 unsecured and 10 with security subject to dispute.
Without a forensic examination,such data is impossible to uncover.
Who would want to be an auditor ?
I would suggest that there may be more than one failed finance company in this country where if the receivers are carrying out their duties diligently,they need to look at the auditors.
Not to mention the Directors of course.
Compare the historic public image of Rod Petricevic with Allan Hubbard.
Prince versus pauper lifestyle.
Provincial conservatism versus Auckland jet set.
Bridgecorp and those who invested in it were for many years a standing joke between myself and the local sharebrokers.
As an investor who had invested $250,000 through a planner in that company said to me recently ''You did warn me about them''.
Lachie Mcleod,chief Executive of SCF said last year- ''What has annoyed us is to see advisors have taken money from ourselves and put those funds into finance companies that are paying higher brokerage.What's driving the advice ? Why would a financial planner take money from ourselves and put it with a finace company with no rating and much higher risk ? You have to ask the question.The answer,possibly,is brokerage."
Top marks to Lachie for lateral thinking.
When I see an insurance salesman noting that he is a member of a million dollar club,or some such term,my immediate thoughts are that he has the gift of the gab and is a good at selling things,and no doubt would be a success in other sales fields.
Unfortunately,with what we have been experiencing in recent times,such an achievement does not necessarily mean that clients are assured of a high quality product.
When Chris Lee criticised the 3.5 star out of five rating given to Bridgecorp by Property Investment Research Pty Ltd,the managing director said ''It's not an audit,we would have to stand in their office for several weeks to do that,and the market is not prepared to pay that sort of money.''
Who might I ask,is ''The Market " ?
Quite correctly,Chris Lee said this report was meaningless.
It was a Clayton's report.
No forensic work whatsoever.
A complete waste of money.
But how would Joe public know that ?
On 24 April 2008 at 12:16 pm Majella said:
Mr. Lee should be extremely cautious. No one is completely without fault. "Let he who is without sin cast the first stone" comes to mind.

An interesting change arose on his website recently - the total disappearance of Hanover Finance...and a day or so later a note was added stating "Please note until further notice we are not in a position to accurately rate Hanover/United/Fai." Why not? S&P just reconfirmed its rating? But then, he has already shown that he has little confidence in any rating company (possibly with some justification).

Still, the obvious question arises - what of his existing investors with holdings in Hanover, made on his recommendation? If Hanover IS in a tenuous situation, AND Mr. Lee pulls his "rating", might he not be seen to have been influential in whatever happens to Hanover next? A massive drop in re-investment can severly strain even a sound, strong finance company, let alone utterly sink a more fragile one.

Will he repeat his offer made ot his Provincial clients? How deep ARE his pockets?
On 24 April 2008 at 1:51 pm Red Dog The pirate Guy said:
The greedy level of dividends declared to the shareholders of Hanover Finance Limited is of concern to me,as was the greedy level of dividends declared by Provincial Finance Limited.
I have not seen the S & P rating,and do not know what evidence they used to compile their ratings.
What I do know is that every financial planner whose portfolios I see is withdrawing all of their clients' funds from Hanover Finance Ltd as those debentures mature.
There have been template letters written by planners to their clients in this respect,and I have seen one letter from a sizeable planner which stated that Hanover had been informed of this decision.
So if all of those financial planners whose clients have already been hit with other investment losses no longer support Hanover,who is going to support it ?
Many of the debenture investments I see with Hanover,do not mature until late 2008.
Therefore it is going to be in the last three months of the 2008 calendar year that the chickens come home to roost.
Do S & P know about these facts,or is it a ''now'' credit rating ?
I am now looking at page three of the April edition of the publication called ''Business South".
There have been rumours in certain Central Otago circles for some time not to invest in Hanover.
The article ''Speculators Days numbered-for now'' talks about the Jacks Point Development.
Has anyone looked at this website to see what Fletcher Homes are hoping some mugs will pay nearly $1 million each for ?
I quote from the article-''Meanwhile,the state of the residential market even in upmarket Queenstown is showing the same signs of correction as other parts of the country.The developers of Jack's Point are now competing with Hanover Properties and Fletcher residential to whom they sold wholesale blocks of 200 sections and 350 sections respectively at Jacks Point a couple of years ago.Settlement payments have been made and titles issued for nearly 200 of these sections.
Fletcher has built about 40 speculative homes for nearly $1 million each,while Hanover is competing its first showhome.
The developers are offering sections at $50,000 less than the $425,000 being offered by Fletchers and Hanover.
At the same time Bayleys is advertising nine Jacks Point sections.Offers are being invited for them plus a handful of other developed properties and a mortgagee sale[taking the number of mortgagee sales in the resort town to about 10 since Christmas. "
I read recently that Hanover derives 90% of its funding from investors.I will have a look at their accounts to confirm this.
It therefore does not take an Einstein to work out why Chris Lee has not rerated Hanover from a B to a D or an E,but has simply not rated it.
So Majella,I can tell you that the Central Otago rumours go back at least 12 months,and the actions of all the other brokers have in no way been influenced by Chris Lee.
The momentum of withdrawal was already well underway,and reflects the planning industry fleeing for safety.
A comment one planner made to me was that in the end,it came down to an evaluation of the owners of Hanover--were they in the mould of an Allan Hubbard or were they in the mould of a Mr Bridgecorp.
I know what my answer is.
Those of you in the jet set world may have a different answer.
It is to be hoped that the quality of Hanover's assets
On 24 April 2008 at 1:55 pm Red Dog The pirate Guy said:
are better than those of some of the other deceased financiers,if the worst eventuates.
On 24 April 2008 at 2:39 pm Majella said:
Oops - it was Fitch (not S&P)
On 24 April 2008 at 2:53 pm Majella said:
Mr Lee has gone to print again, re Hanover. Clearly, HE knows BETTER than anyone else (e.g. Red Dog) though I note that he is not yet prepared to re-rate Hanover at this time (despite Fitch's apparent confidence).

Ouch! I WAS going to copy part of today's e-mail "Taking Stock" but the copyright apparently does not allow fair use, even with source acknowledgement. Pity...still a few selected quotes might be overlooked by the high court?

" Hanover has never been top shelf, but it has survived the last, difficult, 12 months – uncomfortably, but without failing to meet its obligations."

"But Hanover deserves some credit. It did not lend to absurd multiples of its capital (as Lombard did); it was never managed stupidly (as Bridgecorp, Capital Merchant and others were); it never paid double brokerage; and it did get itself externally rated, even if its grading is one pip below investment grade."

"Hanover has suffered from a series of rumours and innuendo, often in those appallingly supervised vacuous website forums where public bar louts practise their belching to the accompanying sniggers of other juveniles who find comfort in this sort of crassness."

(Guess he means us...)

"Happily the adult population by-passes this so the worst of the malicious and meaningless innuendo gains no currency, leaving Hanover to focus on real issues."

"A less resilient company might have found this flow of rumours too damaging to survive. Happily the adults in the industry checks out rumours before publishing them."

"Clearly Fitch has optimism.
I hope to resume our rating of Hanover later this year."

Do I sense a small sigh of relief?
On 24 April 2008 at 9:28 pm Red Dog The pirate Guy said:
There has been talk in the media of complaints by corporates of the very high legal fees they have been paying to NZ's top law practices.
One article I read suggested that instead of paying over $600 per hour to one of the top practices,they could employ their own lawyers inhouse at an estimate cost of $121 per hour.
That makes sense to me,and implies that they consider that someone of quality can be employed for a bit over $200,000 per annum.
A lady I was recently talking to confirmed that her sibling,who is with a top Wellington practice,charges out at $650 per hour.
In my area,the average large scale legal firm partner charge out rate would be around $265 per annum.
I recall some time ago talking to a top litigation lawyer in regard to why someone of his skill level would wish to become a judge.
Well he said,if you were a top QC in Auckland charging in excess of $1000 per hour,why would you bother.
With that in mind,reading some of the disclosure statements for financial planners has been very interesting.
On page seven of one disclosure,I came across this comment---
"'Hourly Rate''---"We carry out limited hourly rate work under special circumstances,in which case the hourly rate is $1265 + GST "
Why be a top Auckland QC with all the stress when you can clip the ticket as a planner for that level of remuneration[plus of course the consultation,management,front end and trail commissions].
And yes,that particular advisor did use Bridgecorp for two to three year terms,and has been caught napping.
That leads me to conclude that the price quality relationship must inevitably be viewed with veiled eyes.
All the glitters is not gold.
As for Hanover,Chris Lee knows much more than I will ever know due to his many contacts.
In regard to rumours,my experience has been that where there is smoke there is generally fire in due course.
Hopefully Hanover can consolidate and perhaps downsize.
However,with so many investors determined to exit most finance companies,it is a difficult road to walk.
Not suprisingly,Chris reserves his judgement.
On 25 April 2008 at 12:05 am Peanut H said:
Red Dog talked about an hourly rate of $1265 + GST ”. Chris Lee probably thinks he and his four mates who are the top NZ advisers deserve Red Dogs $1265 + GST per hour. Lee also probably thinks the rest of us should earn $12.65 per hour as Car Groomers, belch, hic, burp, pass me another Tui Majella, if Hanover goes under then Lee will be joining us at the car wash.

Spare a thought for the older folk who borrowed $50k reverse annuity 3 years ago. They now owe north of $66K. Today one of the providers lifted their interest rate to 12.25%. Another 3 and a bit years the debt will be about $100k.
On 25 April 2008 at 4:04 pm Red Dog The pirate Guy said:
Yes,and for the record you can find that on the disclosure statement of Wise Planning Limited on page seven.http://www.thefinancialfreedomcoach.com.
The way the car sale,real estate and financial planning field is going at present,there might be a few relegated to car grooming.
Isn't that what Matthew Ridge and Brent Todd are finding very lucrative ?
If my reputation was as battered as badly as some planners eg Vestar,I'd be cashing up and moving offshore.
The volume of advertising which Hanover is doing,reminds me of the volume of advertising carried out by Capital & Merchant Finance,the company that if you looked at their website and asked to be directed to a planner,gave you only two options no matter what part of NZ you were in---Broadbase or Vestar.
I have had only one retired couple ask for advice in regard to these reverse mortgages.
The couple had a house worth about $600,000 and little cash income.
After reading the Sentinel brochure,I was very negative,and the conclusion we came to was for each of his five children to come up with say $2000 per annum,
which would in effect amount to a compulsory savings scheme for them,as they would end up with the house in due course.
The Herald reported that Tasman Mortgages limited,which apparently had funded 80% of the blue Chip Deals,had been sending out default letters.
They reported that TML was once owned by Blue Chip Financial Solutions Ltd,which I note was originally the cashed up shell NZ Salmon Company Ltd,and has interesting shareholders such as ANZ bank[and Mr Bryers of course.]
Indeed yes they did own 100% of TML until August 2007,when a 70% share was sold to Lombard Mortgages Limited.
BCFSL[now called Tasman Financial Group ltd] still own 30% of TML.
Some of the shareholders in Lombard Properties Limited must be rather embarrassed at the fact that a reported 2000 investors may lose their homes out of this mess.
With LML being 100% owned by Lombard Group Ltd whose directors include D A Graham and W P Jeffries,who are also substantial shareolders along with ex MP Hugh Templeton,it is not a pretty sight.
The question is,what is the primary source of the funds for the Blue Chip finance ?
I sent a copy of Chris Lee's interest ratings with an orange highlight on Lombard as an E rated investment,to some people who had unwittingly invested with a company called Lombard Finance & Investments Limited.
I have not yet investigated where the paper trail leads.
As for Dr Patrick Caragata,don't you remember Tony Alexander the BNZ economist printing in the media that economists get it wrong 80% of the time,and that there was no point asking him where to invest your money.
Economists are just another breed of reporters.
Gareth Morgan is the only economist I would go to see speak,purely because he is entertaining.
BS refers to ING.
I note from one disclosure statement from an ING planner,that the practice is required to invest 55% of overall client funds in ING products.
The widow with the $1,000,000 in ING Diversified Yield Fund was through ANZ bank,which must have had an internal directive to invest 100% of client funds in the one investment.
The lady would not have a clue what she was getting herself into,and if ANZ had told her to stick with term deposits,she would have followed their advice.
I note that the head of ANZ in NZ was making a speech to the effect that all the riske were fully disclosed to such clients.
If you put this lady on the stand in court,a judge would throw the book at ANZ for inept advice.
If ANZ do not front up to correct this mess,there will be litigation for sure.
I would therefore tend to conclude that the 30% level which BS mentions,sounds very credible.
On 28 April 2008 at 12:23 am Red Dog The pirate Guy said:
My apologies to Admin,who made the statement in regard to the 30% weighting for ING rather than BS,who I have incorrectly creited the remark to.
In regard to the Morningstar reports in regard to ING,I do not know on what basis they were compiled,but presumably they did not take into account the risk factors involved.
We all make mistakes,and most of us many of them,during our lifetime.
It is all very well being optimistic when property values are continually rising,but we have found ourselves at present in an economic crisis not seen since the Great Depression.
Anyone who has not thought through the ultimate effects of ever increasing world oil consumption and subsequent repricing,would be wise to.
I have looked at the financial statements for Hanover Finance Limited Charging Group in respect of the 6 months ended 31 December 2007,which are attached to the Prospectus Extension Certificate dated 31/03/08.
I found them most interesting,especially alongside the excellent article by Denise McNabb of the Independent Financial Review dated 12 December 2007 entitled ''Hanover Property Loans Rolled Over "
I note that SCF filed a Prospectus Extension Certificate on 18 april 2008,which is not yet available.
It will be interesting to view their six month financial statements to 31 December 2007.
I note that Tipene O'Regan is a director of Hanover.
I recall an automotive engineer some years ago informing me that he observed the said director driving around Christchurch in a $300,000 Mercedes convertible.
I favour the image of Allan Hubbard with his VW Beetle.
Mind you,I know some people would always choose to invest with the Flash Harry types.
On 1 May 2008 at 8:58 am Majella said:
Just going back to Wise Planning & the $1,265 +GST per hour fee. I do recommend his website...for a laugh. Anyone can say what they'll CHARGE - the key is how much people will PAY, of course. One has to wonder how many clients have taken the 3 year "Gold" package, at $18,950 + GST?

Perusing the other remuneration sources pages in the Disclosure Statement, imakes it utterly clear that the commssion & brokerage income from product sales would provide somehwere between 30% & 80% of his stated "packages" costs.

Given that I provide most of the services Wise Planning states it can charge an annual fee for - starting at $5,620 + GST - clearly, I'm a total mug. Oh well...happy clients who have confidence in their adviser is probably a more robust long-term model than a flashy set of fees, and likely unhappy punters.

How unhappy? Well, if you'd paid $5,620 + GST to be "coached", and then found that the $50K in Bridgecorp had been halved (or worse), AND the adviser had earned a 1% p.a. fee for the placement...well, ask yourself.

I've come across this outfit from time to time over the years, but only ever met one "client" who had purchased a package . This client was struggling to pay the monthly $120 (around 10 years ago...the current fee structure certainly reflects inflation). He was, unfortunately, a long-term ACC claimant at the time.

While practices such as Wise Planning have an appearance of professionalism & respectability, it is a veneer oh-so-thin.
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