The difference between Hanover and ING

Wednesday, December 3rd 2008, 9:23PM 63 Comments

by Philip Macalister

This Blog is my observations on how finance companies and fund managers handle their own problems. It’s a story which, no doubt, will ruffle feathers. But it’s also one which may surprise readers. It’s also a bit of a criticism of peers. Since it is about comparisons I will start with a report I saw, or heard, somewhere which made a comparison between Hanover co-owner Mark Hotchin and Air New Zealand boss Rob Fyfe. The guts of the comparison were that Fyfe was up their fronting up and Hotchin was skiving off having a 50th birthday party with his mates in Fiji. The thought this commentator wanted to leave his audience with was that Hotchin was some rich, spoilt brat who had no interest in Hanover investors and their losses. What a daft and unfair comparison. For one, I don’t envy Fyfe; he has the hardest job in New Zealand at the moment. Also, as a journalist and seeing how Air NZ has communicated with the media, I would say that there is only one word to describe the company’s efforts: Outstanding. Hotchin, to his credit has spent days fronting up to investors in locations all around New Zealand. Added to that he, and fellow shareholder Eric Watson, have $60 million tied up in the company and are pledging another $96 million in cash and assets. These guys have more to lose than anyone else. The key difference between them and investors, compared to commentators, is they have something real to lose. But coming back to comparisons, the real one is between Hotchin and a group made up of other finance companies and fund managers. Hanover is fronting with a plan. Hotchin is touring the country and so far has presented to around 3000 Hanover investors. He and Hanover chief executive Peter Fredricson have told, and sold, their story. Whether you agree with it or not is a different story altogether. I sat in on the end of the session Hamilton yesterday. My observation is that investors are very angry, but they give the plan, the people and the company a fair go and, I suspect, will vote in favour of what is proposed. Not many other finance companies have done what Hanover is doing. More to the point, nor have fund managers. It seems to the biggest manager with trouble is ING. It has a similar amount of money at risk through its diversified yield fund and regular income fund, as Hanover. (Around $500 million). However, ING could learn a lesson from Hanover. Ever since it froze redemptions investors and advisers have pretty much been kept in the dark. No one has fronted. There is no sign of a rescue plan. The shareholders aren’t offering more capital. The valuations of the credit funds are as dodgy as those of some property assets. (Indeed many other managers are astounded at the valuation of the units. Most put the value around the zero mark). This is in stark contrast to what groups like Hanover have done. What’s more Hanover is aiming to repay 100c in the dollar and has some assets which have value. This is not the story you hear about credit funds. I suspect groups like ING are headed for trouble. I hear strong rumours that advisers are feed up. They have written to the company and are rallying support to put pressure on ING to front up. First it will be advisers, then they will target retail investors. It has the potential to be unpleasant. ING’s parent company has had a bail out from the Dutch government, but there is little sign that there is much support coming back to New Zealand. My guess is fund management companies are going to have to front up to these issues sooner than later. Otherwise there will be a further loss of investor confidence in managed funds. However, I will note that not all companies can be put into the same boat. For instance many haven't ventured into this space. Some like NZ Funds Management and St Laurence has similarly stepped up to the plate and addressed their issues positively. There are others too. Meanwhile, Hanover is suffering from the tall poppy syndrome, but getting on with its rescue plan. It's now up to the investors to decide whether the plan is acceptable - not the commentators (many of whom have nothing at stake with the company).
« Risks and returns in this marketNow the hard work for Hanover »

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Comments from our readers

On 4 December 2008 at 8:14 am Steve said:
It was still a very, very poor decision for Hotchin to have a 50th birthday bash. It's possible that the bash was arranged for him without his knowledge; in which case, his wife & friends (or whoever organised it) should be hauled over the coals, but in the end his photo has been taken with champagne glass in hand in a swanky foreign resort while some of Hanover's investors' lives have been ruined. At the end of the day, and at the very least, that's very poor PR. Mind you, had he celebrated his 50th AFTER the DRP has been accepted (assuming it will be, as seems likely), he would still be vilified because it would look like he was celebrating his "win" with his DRP proposal. But there again, maybe he and his chum, Eric Watson, should be vilified anyway no matter what they do.
On 4 December 2008 at 9:17 am Philip said:
Steve, I totally agree it was bad PR and not a good look. However, I am reliably informed it was organised by someone other than Hotchin.
What was fascinating at the meeting yesterday was one investor rose to his feet to start having a go at Hotchin over the party and the whole crowd rounded on him.
Another investor got up, gave him a major dressing down saying it was none of his business, and the crowd responded with applause.
Yes bad PR, but it seems investors aren't holding it against Hotchin.
On 4 December 2008 at 11:37 am Tony said:
Well thank goodness SOMEONE is taking some action to get ING off their backsides and sort out this mess. It's an absolute disgrace. If the Hanovers and St Laurances are willing to put money in to make sure investors get their money back then so should ING.
I thought ING were supposed to be more reputable than finance companies?????
On 4 December 2008 at 6:41 pm T2 said:
I can understand investors being a little annoyed with the ING situaton. But how about a little balance? After all:

ING didn't cause the credit crunch.

ING disclosed that the fund(s) was investing in CDOs with credit ratings of BBB.

They haven't collected a fee on the fund(s) since they froze.

When markets return to normal, won't investors recover most of their paper loses?

T2
On 4 December 2008 at 8:19 pm Red Dog The Pirate Guy said:
I will say to T2,you are obviously not at the coalface dealing with investors whereas I am.

The problem that both ANZ and ING franchise holders have is that they promoted these ING funds to people of 65 plus years of age who thought they were investing in an investment where they would not lose their capital.

ANZ clients were told "It is just as safe as a term deposit and you will earn 2% more interest"

ING franchise holders of course have to have 55% of their managed funds investments in ING products.

That is why an ING franchise portfolio on my desk had 23.53% of its content invested with the ING DY & GRI Funds.

An ANZ portfolio on my desk has 70.55% invested with the ING DY Fund.

And I am not talking about porfolios worth peanuts.

The latter portfolio is worth more in wealth than I will ever hope to accumulate.

We are in the worst economic downturn since the Great Depression.

Only God knows what will be recovered in due course.
On 4 December 2008 at 11:14 pm TEA42 said:
How about this for balance T2.
ING professional investment managers looking after your investments, low to moderate risk, global investment expertise.
Result = frozen funds, 55% loss in investment value and still falling, March 08 x-ING NZ CEO Marc Lieberman said the loses are largely on paper only, much like a bond which fluctuates in value but which, unless it defaults, repays capital at maturity.
I'm sure all investors would like to know when maturity is.
T2 asks the question "When markets return to normal, won’t investors recover most of their paper loses?"
T2 You may find the loses are real not paper loses. If the loses were paper only then ING should be buying the investors holdings back at $1.
My guess is unless ING fix the mess they will be faced with litigation and a image, damaged beyond repair.
On 5 December 2008 at 8:29 am Stephen said:
T2. You mean you are stil believing that fairy story. Im afraid you are being a bit naive mate. I think you will find out in due course that the DYF/RIF situation is far worse than presently being reported by ING. I suspect they are gradually dripfeeding the bad nes to us because the truth would be just too shocking for advisors and clients to take in at one go. Also didn't you realise that ING have not forgone their fees. They are merely accruing them at the moment to be paid at a later date -assumiing of course that there is anything left to take fees out of. You need to wake up T2.
On 5 December 2008 at 8:51 am Matt said:
To describe Hanover as suffering from "Tall Poppy synndrome" is misguided. With this societal phenomenon, people of genuine merit are criticised or resented because their talents or achievements elevate them above or distinguish them from their peers. Draining $200m in dividends from the company certainly shows no merit and only dubious talent.
On 5 December 2008 at 9:55 am TEA42 said:
I understand there is a group of Advisers feed up with how ING has treated investors who own the ING toxic funds and the group is fighting on investors behalf to get their money back from ING. Does anyone know how to join this group?
On 5 December 2008 at 3:01 pm Ross said:
What this whole episode shows you is the risks attached to investing into "assets" which no one understands. ING must hold their hand up and acknowledge they didn't know what they were doing and buy back the investor assets at $1.00 per unit. If the assets recover, as ING have said they will over 3-4 years, then ING will recoup their money.

If ING do any deal to pay back some investors which is not offered to all investors then I will pull every out client from any ING fund and Kiwisaver. ING have mis-sold these funds to advisers and their bank shareholders and now need to stand up.
On 5 December 2008 at 3:43 pm Stephen said:
I would be very keen to join that group too TEA42. im sure some of my colleagues would as well. can we have some contact details please?

Just some more thoughts for poor old trusting T2. At their feb roadshow ING told us investors would get all their money back + interest. they then backtracked on that and told us that it would be just capital back but no interest.

Upon further subsequent questioning they then admitted that investors would only get back their CLO money about 70% at the time). the truth is much worse than that.

How much faith and trust do you still have in ING T2?
On 5 December 2008 at 8:43 pm Devastated said:
I have invested in the ING Regular Income Fund on the advice of my adviser. I read the Investment Statement at the time and have re-read it many times since. At no stage did the Investment Statement state the fund would be investing in "sub prime" mortgages, ie: mortgages to people who had no intention of repaying. I have sought legal advice on the next step to recover my money and will be interested in talking to anyone else who is contemplating a class action. In my opinion if all advisers make a stand against ING by taking their money away from ING then ING will be forced to recitify the situation.
On 6 December 2008 at 12:00 pm Andy said:
as with devastated. What responsibility are ANZ taking for the losses with ING???. We placed our faith and money with ANZ requiring a low risk invesment as we near retirement. The majority of this money has now disappeared and we hold ANZ totally responsibile for this irresponsible investment. They however, don't want to know
On 6 December 2008 at 3:03 pm dean said:
Phil, before you get carried away championing Mr. Hotchin you may want to check out the following site that's just popped up (www.aninconvenienttruth.biz). Take a look, come back to me, and tell me if he's still your top man too.
On 7 December 2008 at 7:29 am Philip said:
Dean
Interesting site. But the problem I have with sites like that are they are put up by anonymous people who clearly have an axe to grind, therefore are hard to take too seriously.
If the site's creator was prepared to put their name to their work and why they are doing it then it would have plenty more credibility.
It seems the site is related mainly to an event in the US which I understand is very ugly, and no doubt there is plenty more to the story which we don't know. Is it a benchmark to judge Hanover's management by? How important is it to the proposed route forward? That's for other to judge.
The point of this blog was to highlight how different companies communicate events to customers. All it is saying about Hotchin is that he has been prepared to front up in person to investors and answer any questions they put at him.
I say that is commendable.
On 8 December 2008 at 4:57 am Tim Reynolds said:
Nice post. Thank you for the info. Keep it up.
On 8 December 2008 at 10:00 am Jonathan said:
lol, ING was named the Fund Manager of the Year...... how does that happen when you have two frozen funds and a third possibly in the pipeline. Look, Adviser's out there have flogged the Div Yield and Reg income fund as a term deposit on octane, but what will be interesting in all of this is how the banking Ombudsmen rules. It could be quite embarrassing for ING if the banks payout their own clients whilst leaving Adviser based clients without.
On 8 December 2008 at 1:09 pm Marg said:
Investors have a right to be angry with Hanover. Almost $200 million in dividends out in nine years and cross party loans of investors money to themselves. The only people the two Shareholders were looking after was themselves as for the investors they could not care a hoot. Top staff were warned of their poor attitude at the beginning of this year and I dare say well before this but were too arrogant to take on board what was being told to them
On 8 December 2008 at 9:03 pm ian cotching said:
Having taken $200 million out of the company it is a bit rich to say Hotchin and Watson have $60 million to lose + a lot of the property they have pledged may well end up COSTING us secured debenture suckers money. What they did with their related lending was totally immoral and should be illegal.
On 9 December 2008 at 3:45 am Red Dog The Pirate Guy said:
There is no way I would ever invest in a company where a jet set guy like Eric Watson was at the helm.He has the wrong image for me.
As for this guy Hotchin building a $30 million dollar home.
How can an investor expect someone who wastes money in this fashion to be able to competently direct a company ?


South Canterbury Finance's Allan Hubbard's house has a rating valuation of $265,000.
Get the picture ?
On 9 December 2008 at 10:44 am TEA42 said:
A quick way to calculate the current unit value of ING DYF / RIF funds. Pick your favourite number from 1-9 Then use that number and multiply it by 3, then add 3, then, multiply by 3 and you’ll get a 2 digit number, add those two digits together and you get $0.09c per unit no matter what your favorite number is.
On 9 December 2008 at 7:40 pm Concerned said:
Red Dog

You have me concerned! Has AH got no money?
On 9 December 2008 at 8:36 pm T2 said:
Red Dog

What is an "ING franchise". I have looked around and can't find what this means.
On 9 December 2008 at 10:38 pm Red Dog The Pirate Guy said:
Mr Hubbard isn't a trendy Southern dude like Mike Swann.
He is quite happy to drive a Beetle car to work whereas Mike needed a late model Rangerover as a minimum.

A car salesman once said to me "You need to update your car.You need the right image."

I have to give Carmel Fisher more points than Mike.
At least she spent her $8 million on a house.
Mike spent his on toys.

Didn't the author of "Rich man Poor Man" say a house was just somewhere to live ?
Mr Hubbard arrived at that same conclusion long before the author.

As for ING franchises,it is a matter of definition.
If you put ING into the shareholder section of the Companies Website,only one formally appears at present.

However,I see other portfolios like the one in front of me,which is 60% ING products.
While it is not a franchise in terms of ING having an ownership stake in the financial planning business,it just so nicely exceeds the 55% threshold that I am a more than a little suspicious in regard to the closeness of the relationship.
The portfolio is 65% comprised of investments that have "Hit The Wall."
On 10 December 2008 at 8:14 am Chris said:
My understanding is that ING have also taken a cornerstone shareholding in some advisor's businesses to lock in their distribution.

I believe the franchise system you refer to is where advisors agree to give ING at least 55% of their business in return for certain financial incentives and priviledges. I would hope that these ING advisors fully disclose this obligation their client?

ANZ would be the single biggest distributor of ING products. Because they are part owner of ING they make more money that way.

Like Red Dog, I have also seen a few ANZ portfolios come across my desk. Almost all the products being used are ING or ANZ products managed by ING.

I suppose as long as it has been disclosed to a client that ANZ are principally a distributor of ING funds that's OK? If that is not expalained to them then that is obviously not ethical.
On 10 December 2008 at 8:21 am Chris said:
One final ANZ observation. I have recently seen correspondence from ANZ to a complainant where ANZ are offering to pay out the complainant's RIF at the 12 March unit price (to deter the complainant going to the Ombudsman).

I wonder whether ANZ are funding these payouts totaly themselves or whether ING are contributing?
On 10 December 2008 at 3:49 pm Mikec said:
The root of the problem lies in NZ's dodgy regulation of "financial advisors". Anyone can call themselves one.
They have a massive conflict of interest, charging fees to their clients on one hand while taking kick backs and trail commissions with the other. Who would you invest a clients money with? good fund manager, or good company that pays you to do so... no brainer.
On 10 December 2008 at 4:02 pm Sue said:
I was one of the fools who believed ING and ANZ's presenetations about these funds. We were assured that they were just as safe as Term Deposits. I would never trust either of these companies again - but what do they care. They are worse than Hanover in my opinion.
On 10 December 2008 at 9:04 pm Red Dog The Pirate Guy said:
I have recently seen correspondence from ANZ to an investor in ING D Y Fund where ANZ have offered to buy back a portion of the investors' units at their historic cost price of four years ago.

Their offer is labelled as "Less any distributions to Date".
Assuming that by "Distributions to Date" they mean any funds that have actually been withdrawn by the investor,which have been zero,their offer when I compare entry price and present exit price,works out at $194,730.

Having a suspicious mind,it seems to be to be a somewhat unusual coincidence that the maximum sum which the Banking Ombusman can award is $200,000.

The actual loss suffered by the client through investing in the ING D Y is according to my calculations,around four times what ANZ are offering.

Following the issue of the letter from ANZ's Wealth Section,there was an immediate follow up phone call to the investor.

Their lengthy letter attempts to justify their advice by referring to the Morningstar Risk Profile completed for the investor[which they admit slots into their defensive[most conservative] of the five risk profiles.

The letter is signed not by the author,but by an underling.
No doubt that is because the head of their wealth section by now will have writers' cramp.
On 10 December 2008 at 10:30 pm Paul Markham said:
I am one of the unfortunate advisors who recommended DYF and RIF.

ING described these poducts to us as low-to-modrate risk. We had never come across anything like them before and therefore were totaly reliant on ING to explain the risks to us.

These products have now failed miserably having fallen in value (thus far) by 60-70%. So much for the 'low-to-moderate' risk description from ING!

One would have hoped that ING/ANZ would have 'stood behind' their products but not so unfortunately.

ING are the 8th(?) largest comapny in the world. CEO Helen Troup stated in a recent letter to investors which I received today "the additional investment of 10 billion euros from the Dutch government means we now have an even more comfortable buffer to protect our business and our customers' money worldwide".

I'm sorry Helen but your words ring very hollow. You might be protecting your business but I don't see any evidence of your protecting investors money.

Under your proposal announced for DYF/RIF this afternoon, all ING/ANZ are prepared to do is LEND (with interest) $100 million to provide liquidity.

One would have hoped that with the combined financial strength of the 8th. largest company in the world together with the financial strength of the ANZ that you could have come up with something better to look after your investors.

I HAD regarded ING as superior to finance companies but perhaps I was wrong. At least the owners of Hanover and St. Laurence are willing to 'put their hands in their pockets' to try and ensure investors get all their money back. Unfortunately, the 8th. largest company in the world is not prepared to despite Helen Troup's comments in her letter to investors.

Financial institutions rely on the confidence and trust of the public to survive. Once that confidence and trust goes it is 'all over Rover'.

If you do not stand behind your failed products the public will lose confidence and trust in you.

A group of us advisors have become sick and tired of certain financial institutions letting investors down. We cant' do anything about the ones like Bridgcorp that are in receivership but we live in hope that we can bring some influence to bear on ones like ING who want to survive and continue trading in the future.

Our group has decided that it is time to 'stand up and be counted' and we call upon all other advisors who also feel like us and believe that ING's proposal is totaly inadequate to join with us.

Please e-mail me at 'iib@clear.net.nz' or 'phone me at (09) 528-4060 if you care enough about your clients to join with us.

Sincerely,

Paul Markham
On 11 December 2008 at 12:08 am TEA42 said:
Good on you Paul for sticking up for your clients. I shall be contacting you about joining your group. ING should be ashamed of what happened under their watch. Freezing funds of $683m to protect investors funds, yeah right! then idly watching as they managed the investors funds value down to $273m. I hope the regulators are investigating how ING managed to loose so much money with a low to moderate risk fund. ING should stand behind their failed product or risk lose of confidence and trust by their investors.
On 11 December 2008 at 9:46 am Grumpy said:
Hopefully ING's reputation gets obliterated, as it deserves! I would like to see them lose so much business that they pull out of NZ.

They have got away with very little bad press so far. Almost like the press is getting kickbacks as well, so only write non-emotive reports of what is happening. They deserve the same vitriol that finance companies have received.
On 11 December 2008 at 12:02 pm Realistic said:
Wow. It's always easier to notice the speck in someone else's eye without noticing the log in your own eye. What about the responsibility of the advisor?? Shouldn't all of you know that you don't put all of your eggs into one basket. So what about you going back to your investors and apologising for giving them such bad advice. And low to medium risk does not mean risk free. FYI - there is no such thing as a risk free investment. The only one that has made a bit of sense is T2 acknowledging that ING did not cause the credit crunch. Everyone is making it out that there was some evil plot to screw over investors. Get real. You may have a degree but you guys are clearly lacking common sense. Oh and Phil, your comment about having a problem with sites being put up by people who "clearly have an axe to grind" - what do you think you are doing and promoting?
On 11 December 2008 at 2:20 pm alan said:
If, as Helen Troup claims, the DYF was not incorrectly sold and was indeed a low-risk fund, then the blame lies elsewhere ie with the managers of the fund who were clearly not acting in accordance with the marketing strategy and the material in the investment statement. Shouldn't someone at ING have picked this up a bit earlier before the damage was too serious? Or do they let the fund managers do their own thing?
On 11 December 2008 at 5:07 pm Paul Markham said:
Hmmm. I have just been looking through the original launch material again for DYF before our meeting with them tomorrow afternoon.

Jim Reardon's presentation talks about how the diversification in DYF would avoid a catastrophic loss. He uses the analogy of a fleet of fishing boats. The OHP says:-

"Diversification is about reducing catastrophic loss

- One boat, one storm, all is lost

- One fleet, one storm, many losses

- Many boats, out of many fleets, in many locations, one storm, small loss

The DYF 'Scorecard' at the conclusion of his presentation gives ticks amongst other things for:-

- "Fair Value' pricing

- Full transparency

Now I know the 'storm' was a biggie and I know that we now know that the "Fair Value" pricing and 'Full transparency" was bull***t'.

However, we didn't know any better and we relied on ING (as the 'experts'(?)- or so we were led to believe) to fully inform us about this new breed of fixed interest product (and its risk profile).

Wayne Becker's OHP also talks about the product being a 'low to moderate risk' investment.

Now I dont know about you but I wouldn't call a 60-70% (or more) loss as a 'small' loss. Also, I wouldn't expect a 60-70% loss from a 'low to moderate' risk investment, would you?

If this product was a washing machine or a car and the product had failed catastrophically, wouldn't you expect the manufacturer to stand by their product? If they didn't, their business would fail very quickly because no-one would want to buy their products again.

Why should it be any different for ING and their failed products?
On 12 December 2008 at 10:55 am GNI said:
Some notable quotes from INGNZ who put the DYF & RIF products together and marketed them to advisers and investors as low to moderate risk & the reflections of ING Group CEO.

"Enjoy a competitive interest rate return without unnecessary risk"

(source DYF Investment Statement Covers July 2003, Feb 2004 and Feb 2006)

"When you do business with ING you are dealing with an International organisation whose stability and strength offer you the assurance that we have the expertise and skills to meet your needs"

(source ING NZ website retrieved July 2008)

".....If you repackage complex products and associate them with complex constructions and then on-sell them to third parties who don't understand what they are doing, you are organizing a bit of trouble"

Michel Tilmant ING Group CEO
(source Euromoney.com CEO Roundtable After the meltdown Sept 2008)
On 12 December 2008 at 11:27 am Denis said:
Are any advisers intending to refund the commissions paid to them by ING for recommending the duff products? It may not be much, but it would help and would be a nice gesture. In many ways, it's the least they could do.

ING have handled things badly but Advisers that have been paid because they sold the product cannot now distance themselves from this shambles. They were hand-in-glove with the Provider having negotiated appropriate remuneration for their services and were an integral part of the selling process that convinced people to part with their money.

If the argument is "that's what they told us, so we believed them", how does that reassure the public that Advisers are discerning, professional specialists with the investors' interests at heart?

I think some humility is called for here from all parties involved as it is the provider AND the distributors who have let these investors down.
On 12 December 2008 at 2:37 pm Pensive Pete said:
Hmmmm... ING has finally made the big time:

There is a website (http://hf-implode.com) that runs the "Hedge Fund Implode-O-Meter".

The ING NZ funds have been listed on there as imploded.
On 12 December 2008 at 2:47 pm Jonesydoon said:
I haven't been charging monitoring fees on any clients portfolio's for the past 10 months. At this rate I should have cleared the amount invested in the disastrous ing funds by about 2014/15. At that time I can lift my head and look my clients in the eye and start again, hopefully my relationship with them will still be in existence.

I may be a dreamer, but my gut says ing should bite the bullet and admit their complete and utter balls up and refund all clients monies to the value they initially invested.

ING will then be able to remain in NZ as one of the preferred fund managers.
On 12 December 2008 at 5:27 pm TEA42 said:
Denis may have a good idea with ING, why not ask Advisers to refund all brokerage received from MFS, St Laurence, Hanover, Bluechip, Bridgecorp, Strategic, Capital + Merchant and all the other finance company and fund managers who have lost clients money. As well we should also ask all research companies for charging fees for recommending any of the funds, all newspapers, television companies, Good Returns, who all received advertising revenue, Trustee companies, Accountants and Auditors who charged for their services. The only problem might be collecting refunds from Advisers who fully rebated any commissions to their clients.
On 12 December 2008 at 9:43 pm Red Dog The Pirate Guy said:
ANZ are a major Australasian bank who have ben in existence for well over a century.

When they have a financial adviser persuading an elderly person that they should have over a million dollars in an ING Fund which is now frozen,and that their total investment portfolio should be invested in only two things,to me that means that they considered both the frozen ING funds to be very conservative investments which were eminently suitable for someone of that age.

Paul Markham correctly assesses that Financial planners had these products described to them as low risk.

I congratulate his resolve to stand up and be counted.

ANZ in my experience are a dreadfully conservative bank from a lending viewpoint in this country,have had in my working life a steadily eroding client base,and were historically accurately rated as the worst bank from a customer viewpoint in this country.

I would therefore have expected them to have been very conservative from an investment portfolio viewpoint.

However the Aussie press has been illuminating reading over the past 12 months,as they appear to be the most exposed of the Aussie banks to corporate failures and subprime lending.

By comparison,"Realistic" does not commend Paul's post,but goes off on some bizarre tangent in which he stands on a pedastal,and criticises the industry as a whole for becoming involved in an entity of which ANZ owns 49% of in NZ.

Of course nothing is risk free if you want to take it to its academic ultimate.

As for the comment "You may have a degree",this is a throwaway.
A minority of those I deal with in the industry have a degree.
My experience has been that it is the culture of the financial planning organisation which determines the mix of products sold,and formal academic qualifications provide no additional assurance of quality advice to the public.

As for the throwaway comment about this forum,if you object to it "realistic" my advice is not to read it.
Forums such as this serve a very useful purpose in terms of information sharing,and debate.

I recall some years ago meeting with a Westpac "financial planner" and a retired couple of substantial means who were devout fixed interest people,with the planner having a bundle of glossy brochures for various Westpac managed funds, and who solemnly told me that these managed funds were safer than investing with Westpac at fixed interest.

I was talking to another ANZ client this evening.
He is a retired person whose total investments were $150,000 held on term deposit with ANZ.
ANZ persuaded him to put 100% of it into one of the frozen funds.
Why did they bother even driving 150 kms to his home to sell him the idea ?
How can this be called diversification ?
Yet another one for the banking ombudsman.
On 13 December 2008 at 8:05 am Denis said:
Response to TEA42 - Good idea re finance company investments. Also, trustees will have certainly been asleep at the wheel because they will have had some form of statement of investment principles to adhere to.

After that we part company because the research houses, Good Returns and the media do not eyeball a person, conduct a full investment profile and then recommend that particular investment. Same goes for the accountants and auditors, unless they reported things in a misleading way.

Much of the distribution of these investments has been via ANZ branch staff so ANZ needs to take a share of the responsibility for this tragedy. However, rather than pretend that they are the voice of the people, Advisers should also put their hands up for their part in it.

The professional and dignified approach would be to, first of all, apologise. Then work constructively with ING to get the best possible outcome.

Advisers do not have a proud record of objectivity when problems arise. I can see an adviser-led action against ING turning into a ill-tempered bunfight. All of which would be great fun if there wasn't real people's savings at risk.
On 13 December 2008 at 7:56 pm Rid Rat said:
I have just read the blog comments re the ING Frozen Funds. ING have made a big play on their size, 8th biggest finance house in the world.
They were right in there saving Iceland from a fate worse than death. Right at the cutting edge of what was happening in the global economic crisis. I think over the next few weeks we will find out just how much of that knowledge found its way into the management of the Frozen funds on NZ.
These funds were promoted as a substitute for Bank and finance Coy deposits by ING.
At the launch of the DYF they were asked if the capital value could be affected by market conditions like a bond and the answer was that it could not.
My question to ING is. If the funds were a defacto bank deposit and your company has the financial intelligence necessary to make informed decisions about issues in the global meltdown such as the one made re Iceland. Then have you acted with responsible fiducary care to your New Zealand investors?
On 14 December 2008 at 3:04 pm Red Dog The Pirate Guy said:
It is naive to even suggest that advisors refund commisions paid to them for recommending impaired investments.

Such an admission would lay the door open to litigation designed to recover the lost capital.

Look at former advisors with Vestar.It is business as usual for them as they continue with different hats on.

You need to remember that the world is basically corrupt,and justice is the preserve of the wealthy,or those who can access legal aid.

You only need to read the letters from ING to realise that this multinational is playing games so as to concede only what can be gained from the banking ombudsman.

In regard to reassuring the public that it is safe to deal with advisors,the answer is that you need to be inherently suspicious of anyone whose remuneration is in any way based on commission.

Have you ever seen a lawyer admit that they were wrong ?

You have as much chance of seeing a person selling financial products admit that they got it wrong.

You have two shows of seeing humility---No show and No show.

As for trustees,who would actually use the services of the statutory trustee companies ?

Chris Lee summed it up in one of his newletters,which was if you had no-one else in the world you could trust.

The quality and and responsibility of the professional trustees have been debated many times over.

They were "Claytons" Trusteeships.

Go into the Companies Websites, read the various Trust Deeds,and compare them against standard trust deeds.

Who is going to put up the money required to litigate against them ?

At least ING investors who bought through ANZ have the banking ombudsman to go to.

Those who bought through salespeople not bound by the ombudsman have litigation as their only hope.

That reminds me.
The people I mention in post 41,having escaped the clutches of the finacial planner at their bank,were then subject to the attentions of another person who knew they had alot of money to invest.

No it was not their dentist,doctor,supermarket proprietor,accountant,minister,motor mechanic or insurance company.

It was their lawyer,who had an "arrangement" with a particular financial planning firm.

Thankfully he did not succeed,as that planner is heavily into selling ING products,and a template portfolio I viewed recently was 50% impaired.

That template portfolio has been moved away from that particular planner,and a change of lawyer is also being mooted.
On 15 December 2008 at 6:06 am Mark Latimer said:
It is wrong to say ING have a conflict of interest. They have one simple interest - their own large salaries. They have continued to accrue large management fees and pick up large salaries whilst leaving their clients in limbo.

Surely they need to share the pain and refund the fees they took under false pretences.

An orderly wind up of the funds should go hand in hand with an orderly wind up of the whole of ING in NZ.
On 16 December 2008 at 10:10 am GNI said:
I note Red Dog's comment that ANZ customers have the banking ombudsman to approach with concerns. All of the investment statements produced by ING NZ for DYF and RIF indicate that complaints can be referred to the Insurance and Savings Ombudsman. However unfortunately this is incorrect as the ISO say that they have no jurisdiction for these funds.
On 16 December 2008 at 11:12 am Grumpy said:
From what I have read here, it sounds like "Advisors" are not "Advisors" at all, but "Salesmen"! Shouldn't an advisor have the ability to look into the products that they are "selling" to see whether they are appropriate? Shouldn't an advisor have the ability to understand a product themselves?

Sounds like glorified telemarketing. Try to push a product, doesn't matter what it is.

I would like a response from an advisor that pushed the product. Did you understand the product? Did you try? Could you put together a portfolio for a client yourself without ANZ's list of products (if you are an ANZ advisor)?
On 16 December 2008 at 11:53 am Jonathan said:
Again "FUND MANAGER OF THE YEAR".....do they pay money to be awarded the FundsSurce Fund Manager of the Year - look at what FundSource say - http://www.financewatch.co.nz/ShowNewsArticle.asp?NewsID=1110.

"The FundSource Awards, which are the longest standing awards in the New Zealand retail managed fund industry with a 17-year history, reward excellence in funds management capability among New Zealand based funds management companies. Winners for the Sector Awards have also been announced, acknowledging funds management capability within specific fund sectors. ING (NZ) also took out four sector awards, with AXA, TOWER, Guardian, AMP and Fund Managers Central winning a sector each.

Criteria for award nomination include a disciplined approach to investment management and delivery of consistent performance. The winners are selected on their ability to deliver superior risk adjusted performance relative to their peers."

Wow wee.....frozen funds since February, consistent under-performance - can't really see how that fits into the above criteria from FundSource.

I went to one of these roadshows when this product ING DYF was being launched. An adviser asked the question regarding how much commission is being paid and what is the trail fee. Many advisers licked their lips and scribbled that down. As for bank advisers, they may not get the commission or trail fee themselves, but the banks certainly do.
On 16 December 2008 at 6:56 pm Interest(ed) said:
An irony in all of this is that fixed interest assets are meant to perform well in times of stress. This is a large part of their role in a diversified portfolio (to act as a natural counter balance to shares etc. which tend to be adversely impacted by tough times).

Did any fixed interest managers or advisers keep this in mind, or did we all fall into the credit trap like ING?

Fixed interest assets have that twist that your upside is always limited or capped. I guess that if there is a chance you might lose your capital, you are better to invest in equities where al least the upside is unlimited.
On 16 December 2008 at 9:34 pm Red Dog The Pirate Guy said:
Great to see Paul Markham featuring in todays N Z Herald.

If ING plan to wind up these frozen funds as they are suggesting,then they will be litigated against.
When there are people who stand to lose $1 million dollars I am not prepared to stand by and see this happen.

At present,agrieved investors were at least expecting to be able to get $200,000 out of the banking ombudsman and then hold their units until they rose again,to make up the difference.

At the time of the freeze,ANZ bank managers were told to go out on PR visits.
What a waste of time.
The manager arrived with a bag of doughy savoury buns for morning tea.
I took a bite and started choking on the white flour.
I took them home for my kids to eat.
They haven't evolved into the world of wholemeal as yet.
The fact that they couldn't even bring a decent snack sums up ANZ.

As for Grumpy's comment,I could spend a whole day telling interesting stories about people clipping the ticket.
On 16 December 2008 at 11:43 pm TEA42 said:
Grumpy you asked for it,here it is;

Model portfolio compiled by Morningstar Second Quarter 2007 for an income bias conservative investor;

10% Cash Management Fund
25% ING Regular Income Fund
09% PPS Mortgage Fund
08% ING Enhanced Yield Fund
08% Auckland Mortgage Trust
08% Canterbury Mortgage Trust
07% Strategic Finance 18 months Secured Debenture
05% St Laurence 12 months Secured Debenture
08% PPS Property Fund
05% ING Equity Selection Fund
07% PPS International Equity Fund
On 17 December 2008 at 8:34 am Paul Markham said:
Hi Again Red Dog et al,

Firstly, thank yo for your encouraging comments Red Dog.

Our 'Advisor Action Group' had a meeting with Chairman, Trustee and CEO of ING on Friday afternoon. Whilst the meeting wasn't confidential, I will save my comments (and further embarrassment for ING) for another day in the hope that ING will come back with a SUBSTANTIALY improved offer. Suffice to say though that some things came out in that meeting that were frankly alarming! But we'll save that for another day perhaps.

In the meantime, I am delighted to report that we are getting new advisors joining our protest group every day (another 15 yesterday alone). Many of them are talking about pulling their funds from ING but I have said to them that we should give ING a bit more time to see if they are willing to come up with a SUBSTANTIALLY better offer for oiur clients. There is certainly a lot of anger out there in 'advisorland'. I supect we will get a lot more members after they have attended today and tomorrow's ING Roadshows where they are trying to 'sell' their offer to advisors! If yiou wioud lie tto join with us eioth call me on (09) 528-4060 or e-mail me on iib@clear.net.nz. Thanks guys.

I reckon ING would get top marks if they wrote an essay entitled "How to destroy your business in easy steps". All you have to do is produce some products like DYF/RIF. Then sell these as 'low to moderate' risk adn comapre them to the PPS 'Mortgage Fund and PPS International Fixed Interest Fund - just so advisors had a reference point for risk. Then let them subsequently fall by 60-70%, and then say "it's not our problem, but then be 'generous' and offer to lend money at interest to give investors a little bit of liquidity (and then let the accruing interest destroy whatever was left). Smart eh!

Do you remember that as recently as 18 months ago ING were the biggest (and most successful?) fund manager in NZ and having spent 20 years courting advisors, had a loyal advisor base? Heck, I'm even embarrassed now to be seen in public wearing anything with an ING logo on it! "How are the mighty fallen" (and so quickly).

Keep the faith guys.

Cheers,

Paul
On 17 December 2008 at 8:38 am Jonathan said:
you poor prick - you didn't invest on this recommendation did you? As I said before, who sponsors Morningstar and FundSource? Looks like ING is at the top of the list with a list like that. Six of the above funds are now frozen and why would you ever use mortgage funds anyhow as the risk is simply not worth it! There are 6 funds on the list that are all based on property - where is the diversification?

So I put it to the advisers - where was your research or did you simply rely on ratings such as Morningstar and FundSource and your own aligned pay packets to determine where you invested your clients' monies. What a disgrace!
On 17 December 2008 at 9:03 am Grumpy said:
Paul, you're trying to come across as the victim here. The only victims are the clients.

If ING said the best conservative income investment was for you to walk off a cliff, would you just blindly listen? No, you would have asked what the commission was first! You prove my point that some people just can't claim the title of "Advisor"! I would assume that an advisor would have the ability to analyse a product and construct a portfolio on their own.

I would suggest that every advisor that has entered your 'Advisor Action Group' should be avoided at all costs, as it is an admission, of sorts!
On 17 December 2008 at 11:11 am Peanut H said:
Grumpy you are missing the point, probably several points. Paul and his supporters are merely trying to get the best possible outcome for investors. Maybe my view is simplistic but isn't it an Advisers responsibility to get the best possible outcome for their Clients? You also wrongly assume Advisers did not question the suitability of the investment for their clients in the first place. If the provider backed by a worldwide research house recommends a product is fit for a purpose and provides background information backing these claims then I assume Grumpy saw right through these claim back in 2003. Tell me Grumpy in 2003 did you know how CDO, CLO, RMBS High Grade, Prime, Sub Prime, Trust Preferred, High Yield, REITs, PIKing, Loan Credit Default Swop Index, low, mid and high leverage, COF funds, covenant lite securities were? Grumpy are you also saying it was the Advisers responsibility to know that the answers to their research and due diligence questions being asked back in 2003 was not the whole truth and nothing but the whole truth?
On 17 December 2008 at 12:19 pm Naive Sewer Rat said:
New Fandangled Investments

Back in 1992, a fund manager named Nathan Funds Management (which morphed into NZ Funds) released an emerging markets fund IN REACTION (managers always do it in reaction)to growth in share prices in that market. Naively, I recommended a few of my client’s place 5% into it – after all, as is soooo common today, the reason given: “it adds to diversification”. After 18 months we exited – never to return to FAD funds.

Though not an expensive exercise for my clients, I consider it a fantastically valuable one for me. Note to Self: Always, always keep away from FAD funds.

Since then I’ve seen FAD fund after FAD fund appear – “just put in 5% - it’ll help diversity, reduce risk, enhance returns blah blah blah. NO THANKS. But I’ll still keep doing the research on them so I can justify to my clients why I’m not recommending them. (note Australian disclosure rules)

Then along comes ING with their FAD funds – RIF and DYF.

Call me simply naïve again – it just didn’t make sense. Invest in US Mortgages where the banks charge 2-6% in 2004-6 and a maximum of 8% in 2006-7 (hedged, therefore extra cost, not even mentioning the ING’s management fee) and hey presto ING suggest a 9-10%pa return.
Magic……Doh.

I’m no wiz but I’m finding experience in this business is of value. What I am surprised about is, so many long standing advisers have fallen for such a crock.

Then maybe I’m just being naïve, yet again.

As mention previously in this blog, ING has “arrangements” with certain advisers that must put a certain percentage of funds under management with ING in order to obtain certain benefits.
One being “Buyer of Last Resort”
This was an arrangement which suited many older advisers approaching retirement who could sell their businesses to ING at a scaled rate. The more ING funds you placed, the better the buy out plan.
The excuse that “We were told it was low to medium risk” is no excuse. It’s your turn to be naïve.
To those joining this of disgruntled group, you bought a Lada from a Lada car salesman – you chose it!
It’s unfashionable in today’s PC environment, however, take responsibility for your own actions.

To finish with a rodent analogy, this industry (not profession) is becoming a Rat feast, where the rats (the advisors) are feeding on themselves as the food (the client) disappears. Not a pretty look in any sewer.
On 17 December 2008 at 12:25 pm Jonathan said:
Peanut H, you have touched on the very thing that Grumpy is referring to. No one knew what they were and if that is the case and you are supposedly qualified then you supposedly know how most financial instruments work - these things were completely different. So if you failed to understand how these CDO's and CLO's work then you sure as hell shouldn't be putting your clients into them.....These are NZ's version of sub-prime. That is the problem with the industry - smoke and mirrors!
On 17 December 2008 at 12:37 pm Grumpy said:
Peanut, this is ambulance at the bottom of the cliff stuff. The point is that clients shouldn't be in this position. The point is, I have no exposure to these products. Yes, you are correct that I didn't understand these products fully in 2003, and that's EXACTLY why I didn't invest in them (Buffett 101). I mean come on, we have heard that some advisers put ALL of some clients' assets into these! What idiots!

Never trust anyone Peanut, no matter how 'big and impressive' they are. Read the prospectus, look for yourself, don't rely on asking someone else questions. If an adviser can't do real research themselves, then again, they shouldn't have the title.

You will probably find a lot of these worldwide research houses will cease to exist after this. Reputations will be in tatters.
On 18 December 2008 at 2:01 pm Grumpy said:
Naive Sewer Rat, I salute you!

You have not been naive, you have just shown an ability to think for yourself! You are not one of these zombie, worker-bee drone advisors. You have shown intelligence in an unintelligent industry!

I would show more respect if they admitted fault and didn't try to blame someone else. The only reason ING had funds to destroy, is because some advisors gave it to them . . .
On 19 December 2008 at 11:04 am alan said:
It wouldn't surprise me if ING sold their New Zealand business and closed up shop here. After all, by their standards, NZ is small beer and currently a lot more treouble than it's worth.
On 9 January 2009 at 12:14 pm ANZ customer said:
For an example of how an ANZ

For an example of how an ANZ Financial Adviser - first - convinced an ANZ customer to transfer savings from a term deposit into a Diversified Yield Fund and - second - how ANZ then pressured the customer not to withdraw from the Fund, check out:

http://www.youtube.com/watch?v=30W3xDSviJc

Revealing.
On 12 January 2009 at 10:09 am Paul Markham said:
Hi ANZ Customer.

A very good (and accurate) video clip of the saga to date which has caused over 8000 people to lose 60-70% of their money thus far from these funds which ING described as 'low-to-moderate risk').

We represent a growing group of advisors throughout the country who went public on this issue prior to Christmas.

We have since received many approaches from both ANZ and non-ANZ investors in these funds.

Where appropriate, we have referred people on to the Ombudsman. In addition, some these investors want to start an 'Investor Action Group' as well and gain publicity in the media.

You might want to contact me at 'iib@clear.net.nz' or 'phone me on (09) 528-4060 or 021-85-3650 to discuss matters further and I can then refer you on to someone in your area if you wish.

We believe a concerted rather than a fragmented effort is what is required.

Pegards,

Paul Markham
On 29 January 2009 at 9:22 am Grumpy said:
Hi Paul,

Thanks for putting together a list of advisors that got sucked in by ING. Can you pass them all the details for the Australian Securities Institute, so that they can further their education and become real advisors.

http://www.securities.edu.au

Cheers
Grumpy
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