There are so many things going on in the industry at the moment it is hard to know which one to comment on. ING would be the prime candidate, but I will leave that for another 24 hours or so.
The only comment I will make is that its latest proposal over its CDO-backed funds is miles better – indeed millions of dollars better – than the original one. Good on them for dumping the old plan.
Instead of ING it is worth looking at the fixed interest sector again and commenting on finance companies and advisers.
One of the recurring themes I keep hearing at the moment is around advisers and their loyalty, or lack of it, to finance companies. A number of companies have commented that they have worked hard over the years to support advisers, assist them in their businesses and even supporting the industry through sponsorship of conferences and educational events.
The companies I am referring to here are the solid, often-rated, variety; not your shonky Bridgecorp/C+M variety.
Obviously part of the reason for their support of the industry is to help them distribute their products. No different to what other parts of the industry, such as managed funds and life insurance providers do.
However, the theme which has come out of these discussions is that advisers haven’t been particularly loyal in return and have turned off the funds flow tap pretty quickly.
As a result these companies are changing their business models. They are no longer interested in using advisers anymore. Instead they are selling their investments directly to the retail market.
What I find curious about all this is that there is a place for finance company products in some portfolios. Investors clearly want to buy and use these products.
That has been made abundantly clear by the government guarantee scheme where companies have been flooded with millions of dollars of investment.
And it would seem that these people should be getting advice about where to put their money. But because advisers went off the sector following its meltdown and troubles, they have lost a lot of potential business.
And it seems a supportive ally.
Surely loyalty should be earned and not 'bought' by gifts, entertainment and grog? We act on behalf of our clients, if the investment offer is not appropriate for our clients - that is the most important thing, not whether someone entertained us and they were nice to us.
Maybe the finance companies should have reviewed their offers, and worked out what the clients of advisers needed - non locked in funds, PIE's, transparency of investments, honesty in information provision, instead of complaining about the lack of 'loyalty'.
On 26 February 2009 at 10:59 pm Peanut H said:
It's a simple equation, what offers the best risk return for investors. It sure isn't Equitable BB+ 5%, Marac BBB- 5%, South CF BBB- 4.5%, all hiding behind their cushy government guarantees. Mr Finance C you should be paying 10.5%-13.5% to reward investors for the risk. After all you are lending the money out at 14%-18%. The NZDX and other quality bond issues offer far better risk return options for investors right now. I would hope all Advisers have wised up and recognized by now their loyalty is to their clients first, foremost and lastly and not to whoever offers there clients a product. Lastly I haven't lost one IOTA of business by ignoring the mean offerings currently available from finance companies.
On 28 February 2009 at 11:27 am Moral High Ground said:
I have never offered finance companies to clients. Ever. In fact, every client I find who has funds with any finance company is couseled against the sector as a whole, and that has been my own stance for the 7 years I have been in the business. Return for risk has never been adequate. I agree with Peanut H, they are only worth the risk if the return has an appropriate premium, but even then, why would any good adviser risk credibility, trust and reputation (things the profession as a whole is trying to restore) by recommending finance companies? Look at the crucifixion advisers who recommended bridgecorp especially have suffered - and rightly so.
New risk area: Corporate debt issues. The fonterra and SCF offers show that ready money is out there, but long terms at historically low rates, and the variable quality of the issuers smacks a bit like history quickly repeating itself, and shows that perhaps the public and advisers havent really learnt much at all.
On 2 March 2009 at 1:56 pm Peanut H said:
What's the difference between Bridgecorp, C+M, MFS, 5 Star and Mascot? Apart from Mascot being South Island based, they have all breached their trust deeds and have been placed in receivership. A least Mascot investors will get 100 per cent of their money back funded by the long suffering tax payer. It remains to be seen whether the tax payer will eventually get anything back from the Mascot receivers. It raises the question of what research Advisers did before placing their clients funds with Mascot, other than check the Reserve Bank website for the date the government guarantee was granted. I also recall a website with A-E rankings having Mascot more towards the A end than the E end, probably not much loyalty from that website anymore.
On 5 March 2009 at 9:31 pm Red Dog The Pirate Guy said:
Well Mr Head,there are many investors out there who wish that they had been placed by their "Advisors" in something of the quality of Mascot,rather than the type of penny dreadfuls you mention.
Did you know that two reputable sharebroking firms supported Mascot
Finance.
By contrast,I do not know of any sharebroking firms who supported the penny dreadfuls you mention.
As for the return under receivership,how about taking a punt on what you consider the asset realisations from Mascot will be.
From your article I conclude that you are estimating between zero and fifteen percent at present.
The two websites you speak of,in my recollection,historically had Mascot ranked as a B.
In regard to research,on average I would suggest that you could write it on the back of a postage stamp.
On 6 March 2009 at 11:02 am Peanut H said:
RDTPG, you are right, every failed finance company investor would have preferred their investments be covered by the government guarantee scheme.
By reputable sharebroking firms, do you mean the firms which are members of the NZX? or do you mean firms where the principal pays the district court $250 every December to retain a sharebrokers license?
In regard to what Mascot receivers recover for the government. I don't think any Mascot investors receiving a Westpac government cheque for the full amount of their principle and interest would care what happens with Mascot in the future.
I recently read a commentator blaming the Mascot Trustee for allowing Mascot to have a Trustdeed which allowed the Mascot company directors to lend a high percentage of it's capital on one deal moreover the commentator went on to lambast the Trustee for the Trustdeed being too passive and too lenient. Having read a number of finance company Trustdeeds. I have come to the conclusion, most deeds allow the finance company directors to do whatever they like, whenever they like to whoever they like. Perhaps greater scrutiny of Trustdeeds by the regulatory authorities is required, then we won't have the problems such as finance companies lending vast amounts of their capital on covenant light advances and paying out retained earnings as dividends two minutes before the finance company goes into receivership or moratorium.
The future will see most finance company investment statements covered in 3cm round indentations as advisers use their 5m long barge poles to push the investment statements into their rubbish bins.
On 6 March 2009 at 10:50 pm Red Dog The Pirate Guy said:
Mr Head your marketing skills give me the impression you once spent some in sales,perhaps as a banker selling money on commission.
To rephrase,there are many investors who wish that they had been placed by their "Advisors" in something like Provincial or Mascot rather than Bridgecorp,Capital & Merchant and MFS.
By reputable sharebroking firms I mean members of the NZX.
In fact I personally was once an investor in Mascot courtesy of such advice.
How many Mascot investors have you surveyed ?
Those I have talked to are very interested in the final outcome,as it assists them in benchmarking their "Advisors" in terms of how many failed investments they have been placed into,and how bad those investments were on a comparative basis.
The various Statutory Trustee Companies are Dinasours who used to have a large clientele a generation ago,as some professional advisors did not feel adequate to advise on estate and trustee matters.
Some in the legal field would as a matter of course send their clients to a trustee company to hold their will,as a matter of standard procedure.
In the present generation,upskilling has changed that philosophy,and as a lawyer recently said to me "A will is like money in the bank ."
The Trusteeships undertaken in the finance company field were "Clayton's Trusteeships".
Apart from that,the world is basically corrupt,a fact from which NZ was largely sheltered from until 1984.
And of course,crime can pay very handsomely if you are wise enough to salt away the proceeds well before detection.
On 7 March 2009 at 12:11 am Peanut H said:
Mr Red back in the dim dark ages, I was a bank employee selling bank products. But alas it was the days of mere salaries and my banking masters received the big fat mortgage fees, foreign exchange fees, letter of credit fees, bank bill facility fees, overdraft fees, insurance commission fees and all the other fees upon fees. In fact I can well remember having the sheer audacity to recommend to the Head Office masters that we could pay Real Estate agents a fee for recommending clients to the bank for their mortgage requirements. The reply memo bellowed, the bank paying commissions!!! to Real Estate agents!!! it will never happen in our bank!!!, paying commissions, an upfront to decent banking standards. How far the banks have come since then, for better or worse.
The world was corrupt long before 1984. You should remember the infamous deposit finance regulations of Muldoon when every bank and institution thought it was their sworn duty to do their best to circumvent the regulations. It is human nature to look for the easy way out and blame someone else for our own shortcomings. The government has for decades preached anti self reliance doctrine and propaganda. Is it any wonder the Trustee companies bear no responsibility for the finance companies who blatantly disregarded their obligations under their trustdeeds.
What is required is for every investor and adviser to ignore the "we can do whatever we like" trustdeeds. Without money in the door the finance companies and trustee companies will quickly get the message and smarten their act up.
It is a curious thing, if you read the Standard & Poors finance company research reports the reports are usually very silent on the aspects of the company trustdeeds perhaps the research companies don't put a lot of weight on what's contained in the trustdeeds.
Ah October 2010 what a date that will be, Armageddon for a number of non bank deposit takers or the date for a seachange in this area.
8 Comments
Maybe the finance companies should have reviewed their offers, and worked out what the clients of advisers needed - non locked in funds, PIE's, transparency of investments, honesty in information provision, instead of complaining about the lack of 'loyalty'.