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Product recall argument daft

Friday, April 17th 2009, 11:35AM 21 Comments

by Philip Macalister

I was hoping not to write about the ING credit funds for a while – or at least until their restructuring proposal is published – however some of the commentary in the industry has encouraged me to revisit what’s happening. Also I was thinking there is a similarity between the attention Tony Veitch had over bashing his former partner and ING. What similarity you may wonder? Well it seems to me Veitch has had a disproportionate coverage of his dreadful assault, as has ING over its credit funds. ING isn’t the only institution which has suffered massive losses in credit funds. Look at Credit Sails – it recently said its notes were worthless. Fortress Notes aren’t much better. There is a host of other failures, but have they had the same level of attention that ING has had? The answer, as you know, is no. Next is this barmy argument that there should be a “product recall” and ING should pay investors par for their DYF and RIF units. Sorry, credit funds aren’t like washing machines or toasters (well you could argue the money goes around and around or gets burnt, but I think you know what I mean with this comparison). The funds were never marketed as riskless. I also have some concerns over the comments about research. There are two points. The first is someone who has an axe to grind with a research house is using this story for that purpose, yet there is little disclosure about that. When you read some of the stuff out there just pause for a minute and think about who is behind it and their past and that will help you put things into perspective. Secondly, I’m afraid advisers can’t hide behind some report from a research house and say we put money into such-and-such a fund as that’s what we were told to do. Advisers must do their own research and be satisfied with what they see and do. Basic risk reward theory tells you that if a fixed interest investment is going to return a net 200 points more than the bank bill rate then there must be quite a bit more risk in the fund. Yes, it is probably not a low risk investment as touted. To go around and blame everyone else and not take responsibility for your own advice is unacceptable in a profession. My final point is that ING and ANZ are stumping up with maybe as much as half a billion dollars to sort out the issue. Sure they were too slow to do it, but hey, that’s a lot of money in anyone’s terms. Show me another organisation which is prepared to put that much into a problem investment like this. To put it into perspective one of ING’s strongest critics described the offer ING is making as “terrific”. Pity some advisers can’t see it for what it is.
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Comments from our readers

On 17 April 2009 at 10:16 pm Gerry Portegys said:
This particular fund was markered as a low risk investment.Now we find out that it has been invested in CDO's which is on the high risk side.
Fortunately our exposure to this find is not large but I know people who withdrew funds from fixed deposit at a New Zealand bank on the advice of that banks fund manager and were told "It is as safe as the bank"
Go figure
On 18 April 2009 at 10:57 am Del Boy said:
If I didn't know better I would think Phil is a bit cantankerous because nobody has been playing in his Blog sand pit lately so Phil throws a controversial bone out there for the bloggers to gnaw on. I am sure Del Boy and Rodney also think the offer is treffic. I'm also equally sure the 1000 odd investors in the frozen funds group don't think they are part of a balmy army nor do I imagine they agree with the treffic offer.

It seems to me the Advisers who took on "Boycie's" Credit Sails, Fortress Notes, Absolute Capital, NZ Funds or the other failed structured credit products are doing a fine impression of "Trigger" and are not prepared to stand up and be counted in support of getting their investors money back.

If you are going to point your boney finger at anyone for having a barmy idea it should be pointed at those who thought they could get bank deposit like performance from the structured credit market. You can also swing your digit in the direction of the balmy research house who recommended a low risk defensive investor could safely put 25% of there hard earned cash into a certain structured credit product.

It would also be balmy to also think the 1000 or so frozen funds group investors will suddenly be taking Phil's advice and giving up on the replacement toaster idea and accepting the treffic offer.

Only a fool (or a horse) would call the advisers who have got of their backsides and are doing something to get their investors money back lacking in responsibility for their own advice or of being unprofessional.

Tell me Phil, if the fund management industry and research houses are not called on to be accountable and take responsibility for their advice and actions what is stopping them from doing it again?

I wonder who thought of the balmy idea that using structured credit products would provide the Trotter family with untold wealth and happiness, treffic, accept the offer, Rodney, "we can now afford three new tires for the Reliant Regal Super Van".
On 19 April 2009 at 1:02 pm Denis said:
Surely selling high risk investments to low-risk customers is the most reprehensible of crimes in our industry?

Between them, ING and ANZ have misled the public over these investments because they turned out to be much, much riskier than what was said in the product material and the promotional items. Words on official documentation are not airy-fairy waffle. They are regulated and legally signed off, so that the public should be protected from misleading statements.

So given that the statements made were not true, why doesn't the might of New Zealand securities legislation require ING to do the right thing?

If they hadn't written all that low-risk stuff on their signed off material, I'd have the same opinion as Phil. But they said it was low risk because they wanted lots of lovely funds under management. And ooh look, with the margins they can make on fees, they can even afford to pay Advisers and ANZ to flog it. What could possibly go wrong? Erm...
On 20 April 2009 at 3:05 pm Rodney said:
Allo Del Boy, Rodders 'ere. I do wish those advisers who are rocking the boat would shut up. The rest of us just want to bury this. We have been finding it difficult flogging our dodgy gear down at the Hackney markets for a while now. You mouthy advisers (and those friggin frozen investors) are hurting our pockets by keeping up your crtiscism of ING.

And that naughty Phil Boy daring to suggest that a certain person with a wealthy name has an axe to grind. Heaven forbid. That OTHER publication (which shall remain nameless) has alaowed all parties to comment. Not just those mouthy advisers but also Morningstar and ING.

Interestingly, neither Morningstar nor ING have refuted the concerns Malcolm Eves has expressed about the questionable Morningstar 'research' that ING distributed to its advisers.

Also, for ING and ANZ to have to stump up with $500 million would suggest that everything in those dodgy 'Arfa Daley' funds is worthless. I don't think even Arfa would have sold that dodgy a 'car' would he? But then again, having read about the dodgy antics of those 'used car dealers' on Wall Street you never know. Shame that ING never realised they were dealing with Arfa and his mates.

ANZ has provisioned A$130 million and I suspect this is on the generous side. If ING and ANZ do have to stump up with the full monty $500 mil then it would be an indictment on the quality of what they bought from Arfa and his mates with investors money.

I'm sure even Del Boy wouldn't have stooped that low - unless of course ING bought riskier and riskier dodgy gear from Arfa to try and keep up the return as bank interest rates were rising - opherwise the money in DYF and RIF might have walked back to the banks!

Do any of you dodgy geezers out there know what ING actualy invested in -come to that, did ING really know?

One last point before I head off to the boozer with Marlene. If the ING proposal goes ahead and the Commerce Commission finds against ING, I trust there will be no clause in the paperwork which will prevent investors subsequently seeking full repayment from ING.

As Del Boy taught me "look at the fine print Rodders, look at the fine print"!
On 22 April 2009 at 10:06 am alan said:
I think these advisers who seem to be digging their heels in and urging a full recall at $1 are on dangerous ground. If the offer by ING/ANZ is turned down, they have said another better one won't be made. The risk then is that their clients will end up getting back only the 20 odd cents rather than three or four times as much under the offer. Advisers who support a vote against then have a further promblem for themselves. What's the old saying about a bird in the hand... Alan
On 22 April 2009 at 11:49 am Dr James Stuart said:
I have been following this issue carefully since it first arose and after reading ‘Phil’s Blog’ feel compelled to respond. I have an elderly family relative who was recommended capital secure investments by a certified financial planner. The investments concerned were Credit Sails notes and the ING Regular Income Fund and these represented a fair proportion of the funds she invested. We were charged a professional fee for this advice and no doubt the adviser received commission from the companies concerned.

I agree entirely with what Phil has written. My family member relied on the expertise and knowledge this financial adviser provided with respect to the investments he was recommending. As a certified financial planner we assumed he possessed a fundamental knowledge of how to research investments with impartiality and skill, the dangers of relying on information provided by the product seller, and the basic concepts of risk and return that Phil mentions.

If a source of research contradicts the basic risk and return model then this discrepancy needed to be investigated and an educated decision made (and disclosed – including the citing of sources). It appears to me that if the investment was capital secure then the need to expand the scope of the research to identify contradictions to the risk and return model surely must increase. It’s quite a straight forward premise. And if you are unsure then sell. Risk represnts, after all, the concept of uncertainty!

I learned that the adviser we engaged had been selectively withdrawing clients from the ING Regular Fund when the investment had begun to fall in value, but when my family member enquired about a withdrawal she was given almost a word by word repetition of the information that ING were sending out. Subsequently the investment was left in tact and then frozen. I believe that the certified financial planner in question is now fully backing a move to demand ING refund the invested amount in full.

I support the proposal from ING and argue that any shortfall from what ING will guarantee below par value should be met by the financial advisers in question – on a case by case basis.

As a retired academic I have no experience of the financial advisory industry in this country but there is clearly a breakdown of professional responsibility and integrity happening which your readers must find alarming.

Thank you.
On 22 April 2009 at 3:19 pm Pete said:
If we were talking about Bridgecorp or Capital & Merchant Finance here I would have some sympathy with the concept holding Advisers accountable. However we are talking about two major institutions, NZ's largest fund manager and NZ's largest bank. It should be possible for Advisers to trust the information being provided by an organisation with the size and previously sound reputation of ING. Although there are loopholes in existing securities legislation around disclosure in offer documents, it is reasonable to expect that major players would be responsible enough to ensure that risks were adequately explained. Unfortunately it has become ubundantly clear to me over the last 18 months that ING only ever disclosed in offer documents and in material prepared for Advisers a tiny portion of the risk that these funds were exposed to. Either they were unaware of the potential risk and therefore incompetent or they were fully aware and chose to mislead both Advisers and Investors. Either way they are responsible and should do the right thing by fully compensating those unfortunate enough to be invested in these funds.
On 22 April 2009 at 4:09 pm James said:
Dear Pete

I cannot accept your argument.

You appear to imply that the advisers who recommended the ING CDO credit products could afford to relax their duty of care and responsibility to research investments because the company selling the investments are of a reasonable size and reputation.
I did not know that the duty of care was so conditional – and for a new and untested security it screams of negligence.

Was this reliance on ING’s reputation and size as a substitute for educated and impartial research disclosed? I would be surprised if investors were told that “because it’s ING I’m not going to worry as much about spending the time you pay me for to find out exactly how a CDO behaves in good and bad markets.”

As a fee paying client would you accept that level of care from your accountant or lawyer?

The information on the risk of systematic collapse in CDO markets was out there for public scrutiny before the ING investments fell heavily in value. If ING had missed it then so be it. They are paying the price. But it reflects very poorly on those advisers who didn’t say to themselves “Hang on, what’s going on here? This doesn’t add up! ING said it will be ok, but they would wouldn’t they….”

Thank you.
On 22 April 2009 at 10:58 pm Peanut H said:
Dr Smith you are a retired academic who admits having no expertise of the financial advisory industry in this country but you have opinioned there has been a breakdown of professional responsibility and integrity but you don't say at what level, so I will assume you mean at the adviser level.

The following may assist you in understanding where the breakdown of professional responsibility and integrity occurred.

In 2003 ING were purporting the use of in house overseas experience and expertise in regard to their NZ structured credit offerings. Today we know there were no in house overseas funds which resembled the ING NZ structured credit offerings.

In 2003 the ING NZ structured credit offerings invested in assets with recourse to borrowers, guarantors and robust security documentation. Today we know there was no recourse to borrowers, no recourse to guarantors and the robust security documentation was largely covenant lite security.

In 2003 no leverage at all at the ING NZ structured credit offerings level. Today we know the structures the ING NZ structured credit offerings were investing in creates leverage. The adviser nor the investor knows what leverage is contained within a fund of funds structure the ING NZ structured credit offerings were investing in. Also the fund of funds structures were investing in other fund of funds structures. Was the leverage squared or cubed? Who knows how much the leverage was magnified. But ING have been consistent "there is no leverage".

In 2003 major overseas banks and investment banks created a liquid structured credit market. We know today no liquid structured credit secondary market for either debt or equity structured credit tranches exists or if it does it wants to pay pennies in the pound for securities..

In 2003 every underlying asset had a maturity date and investors who hold to maturity will get there money back. Today we know before maturity, those higher up in the security waterfall can default and the structure can be liquidated at the current depressed market prices giving investors no hope of waiting for maturity to get their money back.

In 2003 no trading risk as the underlying assets are held to maturity. Today we know the structure manager can trade assets which may impact on investor returns. The controlling class of the structure may exercise their rights at any time at the detriment of other classes within the structure.

In 2003 experienced structure managers and fund of funds managers produced consistent historical results. Today we know the historical performance of the structure manager or fund of funds manager was based on a shallow pool of historical indicative return and default information. Today's actual default and recovery rates varies significantly from historical observations.

In 2003 ING NZ structured credit products team provided all information surrounding the underlying investments the structured credit offerings were invested in. Today we know ING NZ structured credit products team had signed confidentiality agreements with the underlying managers and were prohibited from disclosing proprietary information concerning the fund, including portfolio positions, valuations, information regarding potential investments, financial information, trade secrets and the like. No reproducing of the memorandum of subscription to any other persons. Given this level of secrecy and lack of disclosure advisers did not have any hope of gathering sufficient facts to conduct their own research and had to rely on the established creditable research companies such as Morningstar, Standard & Poors and Moody's for their research information.

In 2007 ING NZ structured credit products team were saying the world was facing a sub-prime mortgages problem and there was a short term contagion effect that had depressed the prices of CDO's, but that would pass within months. Today we know months maybe decades.

In 2007 ING's global head of risk warned of impending trouble, but ING NZ said even if they had known about the warning they wouldn't have acted any differently. Today we know if they had acted on the warning, we might not be discussing this issue at all.

The final word should go to the following organizations. The Securities Industry and Financial Markets Association (SIFMA), the American Securitization Forum (ASF), the European Securitization Forum (ESF), and the Australian Securitization Forum (AusSF), which have been working together since early 2008. The group offered 8 recommendations to restore confidence in the global securitization markets in December 2008:

1. Increase and enhance initial and on-going pool information on US non-agency RMBS and European RMBS into a more easily accessible and more standardized format.
2. Establish core industry-wide market standards of due diligence disclosure and quality assurance practices for RMBS.

3. Strengthen and standardize core representations and warranties as well as repurchase procedures for RMBS.

4. Develop industry-wide standard norms for RMBS servicing duties and evaluating service performance.

5. Expand and improve independent, third-party sources of valuations and improve the valuation infrastructure and contribution process for specified types of securitization and structured products.

6. Restore market confidence in the credit ratings agencies by enhancing transparency into the ratings process.

7. Establish a Global Securitization Markets Group to report publicly on the state of the market and changes in market practices.

8. Establish and enhance educational programs aimed at directors and executives with oversight over securitized and structured credit groups, as well as at investors with significant exposure to these products.

Dr Smith hopefully you will alter your belief that advisers suffered a breakdown of professional responsibility and integrity. I also believe ING have demonstrating their professional responsibility and integrity by making their latest offer even if I would prefer it to be at par.
On 23 April 2009 at 9:40 pm Interested said:

It seems to me that sometimes people only ever read what they want to hear. You seem bright - so surely these little warnings didn't go unnoticed (see the links below).........

You don't seem to miss much else that gets published on this site!
On 24 April 2009 at 8:54 am Marty Mars said:
I agree with a lot of what you are saying Phil.
In my mind an adviser cannot abdicate their responsibility for research and ultimately the selection of the assets/products recommended. Many do though - whether its the risk/return calculator - "Yes Mr Client you have scored a medium risk/return profile so this is what you should have...etc" Or "As a low-risk profile score - we will place you with the following products/providers."
Advisers need to front up (like Veitch) and accept responsibility. Blaming the product providers for trying to sell and push their products is crazy.
Notwithstanding all that, if a company deliberately misleads advisers then they should be 'outed' and sorted, legally.
No one twists an adviser's arm up their back to make them sell something - it's time for this industry to grow up and stop blamming everyone else.
You, the adviser have fiduciary duty, you get the remuneration and you have the relationship with the client. Seems pretty straightforward to me.
On 24 April 2009 at 9:48 am Philip said:
Thanks for the comments guys. Here are a couple of points in response.
No I am not being cantankerous!!!! Rather suggesting that everyone has to take some blame on this issue. Fund manager, research houses and advisers.

There is also an interesting point about this product which has implications on the debate. That is the funds were sold through intermediaries with advice and also "over-the-counter" at the bank.

With the former advisers would be foolish to say they relied on the fund manager marketing material in making their recommendations. Advisers needed to do their own research and decide on the merits or otherwise of the products. Perhaps some got lazy or found other attractions about these funds?

I would love to meet an adviser who truly, 100% understood how CDO funds worked, and what the impact on these products would be in various different market conditions.

I sat through plenty of presentations from different managers and each time came away with the feeling; sounds good, but I don't quite understand how they work. Anyone else have that feeling?

Also it seems that some have forgotten that there is a major crisis in credit markets of proportions not often seen, and that will have an impact on investments. Indeed it is possible to suggest that with a new-fangled; highly engineered product like this no one would have modelled what would happen in the current type of environment.

I think that advisers and investors can be heartily congratulated for getting ING/ANZ to increase its offer. The first offer was sub-standard. The latest looks much better. This came about through adviser/investor pressure, plus willingness from the company to listen.
On 24 April 2009 at 10:44 am alan said:
some advisers are being accused of not doing their homework before recommending the ING funds. Could they not argue in their defence that the ANZ were actively promoting the funds to their banking clients and that with the bank's undoubted research capability, surely they would have not done so if the funds were not thought to be up to scratch?
Or have I missed the point?
On 24 April 2009 at 4:34 pm Strolling down Memory Lane said:
Actually, a warning about CDO risks came from ING's own senior investment manager Jim Reardon right at the outset.

Under the June 24, 2003, headline "ING's capital note counter", Good Returns quoted Mr Reardon as comparing CDOs with corporate bonds and saying of the then newly launched ING Diversified Yield Fund:

"However, there are credit risks. If we got things terribly wrong in terms of the investment and we got supernatural default levels or catastrophic global credit events then there is still the potential for capital losses. Returns don’t come without risk.”

Unlikely as it would have seemed back in 2003, the global credit crisis has since delivered "supernatural default levels" and "catastrophic global credit events".

The broader lesson is that improbable events can and do occur, and that investment selection, allocation and advice processes need to take account of the consequences of such events at least as much as their likelihood.

While it might not have seemed likely that the sorts of outcomes Mr Reardon described would happen, the fact that they could happen and thereby cause capital loss should have been explicitly recognized in advice to investors about whether to use CDO-based retail investment products and, if so, at what prudent percentage allocation in portfolios that matched each investor's personal risk profile.
On 24 April 2009 at 6:38 pm Michael D said:
As one of the 'grandfathers' of the NZ financial planning profession, having commenced mid 1980's to build one of NZ's largest financial planning companies,in 2001 I had my business 'stolen' off me by the 'head' however I did win my high court case against him, proving my rights.
My point here is that one of the reasons given at the time of 'stealing' of my business was that I was appearing to do much of my own research and monitoring, rather than just accept the so-called research and monitoring that the company was claiming to have done to save us advisers the trouble...!
I had become increasingly unsatisfied with the performances of portfolios for our range of mostly conservative investor clients, and had proven that my own research had resulted in less volatile performances.
I have been concerned for many years now about the real motives behind the choices by many advisers for their respective clients, and have at the same time held back from any slanging of my peers in the profession.
The current ING debarcle is a sad yet at the same time "storm that was waiting for the right conditions" (or is the wrong conditions?).
I agree with many of the contributors who suggest that most advisers (certified or not) would not actually know very much about the actual "mechanics" of the managed funds they use..!
One of the sad facts which I am well aware of is that the larger advisery companies have an inherent curse of sorts in that they need to use managed funds in order to be able to supply their large-number client base with enough diversified investments.
Further, in their quest to provide the supposed diversification range, the advisers inevitably end up having an ever-increasing number of funds to offer, so naturally they need to do an ever-increasing amount of good research, but the trouble is, the job is just too big.
The natural remedy has been the "magic capitalistic markets" which (like those houses for Blue Chip) just seemed to have a continued (albeit a little bumpy) ride upwards, and this tended to lull the advisers into using their age-old comfort to clients to "hang in there, because it wasn't me who dropped your value--it was the markets, and they always rise again...!"
Well, most times, the adviser was supported in a relatively short time-frame, and those magic markets did rise again and the investors again thought the adviser had earned their monitoring fees.
This time, we have seen the biggest and most protracted market falls since grandad's days, and that is what is behind most of the pain, for investors AND for advisers who must field worried calls every day by the dozens.
An answer from my perspective may be to all become smaller businesses,(contrary to the current suggestion to team together to become bigger) because I have found that smaller businesses do not have to succumbe to using huge numbers of managed funds, and if they do use them, they can intermingle them with a larger proportions of direct, usually SECURED deposits/investments.
Therefore,we are now seeing the results of the horse having bolted, and all trying to lay blame on others, an often natural human response.
The blame is multiple, however it must fall more on the relevant adviser/s unfortunately, because they are the very "in-between" who the investors relied on to know more than them...!
Most advisers are brainwashed into believing that they are not capable of being "trend-pickers" and that is a worry.
Eg: Would it be more risky to buy a house now, or 3 or 4 years ago (at the peak)? The answer is two-fold depending on your expectations (a) less risky if you wanted protection from huge value-falls or (b) more risky if you expect immediate high value-rises like yesteryear.
So this can demonstrate an ability to "pick trends..!"
The relevance is in the question, "what degree of 'trend-picking' did the relevant advisers use when choosing CDO's or Hedge funds or Blue Chip house funds.
To finish, who can pick the trend with the most potential for capital gains (or losses) in bond funds, in relation to future interest-rate "trends"..? The advisers need to accept their relative resposibilities because that is what the mum's and dad's hire them for.
That is why I had NO clients in any finance companies, nor Blue chip, nor ING CDO's or any managed funds and so on. Nor do I currently have ANY in Bond funds.
No-one gets each investment right all the time of course, but "trends" are relatively easy to pick...!
The advisers are to be answerable for their portfolio choices, and if they are not comfortable with their product knowledge, how can they expect their investors to be?
The easy (but not the acceptable remedy) is to be a wimp and sell out instead of sticking it out with your investors (and your loyal advisers if you head a large company). The real advisers will stay with it, admit their wrong trend-picking and inferior research, and help their clients to re-coup losses with some good trend-picking..! More gains can be made in a recession than in boom times, ask someone like Mr Trump, one of the best 'trend-pickers' around.
On 25 April 2009 at 1:38 pm Red Dog The Pirate Guy said:
Interesting comment made by Sir James Stuart in regard to selective morality by a supposedly reputable financial planner.

I suspect that I may know who he is referring to.

The Planner I am referring to is heavily involved with ING.

This type of behaviour came to my attention because someone I am involved with has a relation who works for that particular planner.

I was intrigued to note that the person I am involved with had been given favourable attention in regard to the withdrawal of an investment not long before it was frozen.

The marketplace in general had no knowledge of this potential freeze at this point in time.
On 25 April 2009 at 9:52 pm Red Dog The Pirate Guy said:
A Sharebroker I work with has drawn my attention to an article in the Southland Times of Friday 24 April 2009,which I have now read online.

It concerns Invercargill ING Franchise Firm Bennetts,who according to the article have had a number of disgruntled investors call the newspaper.

According to the paper,Mr Bennett says "ING"s 20 per cent shareholding in the company did not influence the investment advice given to clients."

The Sharebroker however has emailed me a copy of Bennetts Disclosure Statement.

These disclosure Statements are interesting reading.

On page 5 it states..."ING[NZ] Limited has a 20% shareholding in Bennetts Financial Services Limited.
BFSL has entered into a licence agreement with ING that enables it to distribute ING's master trust,Private Portfolio Service and other ING or administered funds.
The licence Agreement also requires that 55%[by value] of managed funds business needs to be placed in Private Portflio Service[PPS] or other ING-managed funds or administered funds.However there is no requirement for BFSL to place a percentage of each individual client's managed funds in PPS or other ING-managed or administered funds.
BFSL has the freedom to create a portflio and select funds/investments for each individual client."

Something for Mr Peanut to get his head around.
On 25 April 2009 at 9:58 pm Red Dog The Pirate Guy said:
At this point,I will make it quite clear that the Financial Planning Firm I refer to in my post of April 25th 2009 at 1.38pm is not Bennetts.

The firm I refer to in that post is located in a somewhat more Northerly geographical part of New Zealand.
On 26 April 2009 at 5:09 pm Voice of Reason said:
Hey, come on, you guys- any investment which ever failed can easily be attacked in hindsight on the basis that the adviser should have known better, or that it was not properly explained by it's creators- that's almost the definition of a failed investment!

High time we put aside all this hindsight stuff and look at reality as we saw it back in 2003?

I am an independent adviser with no ties to anyone, much less ING, and when I first investigated using this product with my clients I looked into it as well as any of us did at the time, and like most of my fellow advisers, was much reassured by a good independent rating for this type of investment. It looked to me like a hell of a good deal for clients who were currently investing in Finance companies, and that's what it was.

I also asked ING what it would take to have a major fall in value and they said it would take a major financial collapse internationally for this to happen (and guess what?)

They also cautioned quite specifically that it should not be considered as an alternative to a bank savings account, but instead was more like a better diversified substitute for investing in all those un-rated NZ finance companies.

They further told me that it was low to moderate risk and stressed that it should only be used as a percentage of a client's fixed interest portfolio.

I can't comment on what ANZ advisers told their clients, but I am pretty sure that AT THAT TIME (ie before the major financial collapse came to pass) the above was pretty close to how most of us independent advisers understood the product to be, even though I don't think any of us fully understood exactly how it worked.

And yes, I believe that, like me, most financial advisers would have placed a lot of faith in the product advice given by what is after all by far the biggest and most successful fund management company New Zealand clients can deal with! On top of ING's reputation, I am sure that few advisers would have looked any further for confirmation of quality than the highly trusted (AT THAT TIME) independent rating agency- after all, let's not forget that that's what they exist for!

Accordingly, in my view, AT THE TIME everyone in the financial services industry would have agreed that, given a good independent rating, it was a safer and more diversified investment than investing over a handful of similar earning but unrated NZ finance companies, and I doubt that any client who brought the product on that basis would now be bad mouthing ING, ANZ or their adviser. After all, getting virtually all your original investment back (and possibly more) after another five years without any interest is a lot better than 10 cents in the dollar now from Bridgecorp.

However, it's also my opinion that it would have been patently wrong for any financial adviser to have been recommending this product as having a similar risk factor to a trading bank term deposit or call account, based on what was known at the time, and they would now deserve everything their clients choose to throw at them, including being sued for the balance of their investment over and above what ING/ANZ are going to pay out.

Just as should be the case with any investor who invested in unrated NZ finance companies, if they were not told by their adviser that a good percentage of them would be certain to default over time.

And yes, in case you are wondering, I too have a pile of money tied up in DYF, but unlike some others, I am delighted that ING/ANZ have been prepared to stump up a big pile of money to help get us all out of a hole they didn’t cause- as Phil says, they didn't have to do that, and should be applauded in the way that they are supporting their advisers and clients.

Let’s leave it to the group of possibly mis-sold ANZ clients to pursue what may well be a win-able cause against the bank, but please, why don’t we impendent advisers just put this behind us and get on with restoring investor confidence so that we all have a business to look forward to going forward?

Could the members of the current adviser vendetta driving an orchestrated campaign to try and harm ING please stop and consider what effect their efforts are having on our funds management industry and on the businesses of the majority of us advisers who have no such axe to grind?

You did a great job in getting a great offer from ANZ/ING, but don’t risk alienating your fellow advisers against you and our clients against us in the pursuit of even more!

And in terms of getting your and your clients money back with interest,
who knows, by being patient things may come right and we may eventually even get back all the years of interest we will have lost as well...

Yeah, Right.
On 27 April 2009 at 1:00 am Peanut H said:
The least of an Advisers worries, ought not to be worrying about a group of Advisers with an axe to grind. As Advisers we have to front up and fix the problems we have collectively allowed to happen by our support of the products which were the cause of the problems. I would be fair to say Advisers have lost a great deal of trust from the investing public. Let's face it, we have not collectively done ourselves many favours by supporting the syndicated property sector during the 1990's nor by supporting the finance company sector, the investment apartment sector and structured credit sector during the 2000's. I hear some saying, "I didn't", for these Advisers please stop reading, go polish your halo and enjoy the ongoing challenge of meeting your clients expectations. I note the syndicated property sector is gearing up for a 1990's resurrection in the 2010''s hopefully we won't repeat the mistakes of the past in this sector.

A recent industry report suggested "asset managers will have to take proactive action to rebuild the trust of investors and the public if the sector is to recover its reputation." It is not only up to the asset managers but Advisers as well. As Advisers we tend to be polls apart with some calling Advisers nothing more than a tolling operation for non performing asset managers and others calling Advisers insurance salesman who tell lies in the disguise of giving independent advice. A number of commentators also suggest Advisers should not believe what they are told by asset managers nor research houses and must solely do their own research.

I believe all is not doom and gloom. A number of Advisers (smaller than it ought to have been) took responsibility and actively sought a remedy for one of the problems. ING as a result demonstrated their leadership amongst NZ asset managers by putting their current offer on the table. The offer won't appease everyone but it does show ING have demonstrated a level of professional responsibility and integrity not seen before from a NZ asset manager.

I agree a little with the comment "we independent advisers just put this behind us and get on with restoring investor confidence so that we all have a business to look forward to going forward". But with the proviso, all Advisers share responsibility for making sure we do all we can to prevent a re-occurrence of what has happened in the past. We need to forget any notions of motivation by greed or self preservation. The only way through the tough times ahead will be to address how we are going to meet our clients expectations.
On 27 April 2009 at 9:01 am Independent Observer said:
My take on this discussion:

Product Manufacturer - if this product was appropriately marketed, without misrepresentation (either mischievously or innocently), with adequate risk disclosures, then the manufacturer can sleep easy. The fact that they have offered a ‘compensation’ deal infers that the manufacturer is not sleeping easy, and that further research may unveil some issues. I suspect that potential problems may be discovered in the accurate valuation of the underlying CDOs and the accuracy of the unit price (ie: it is possible that some unit-holders were unfairly advantaged over others). It would be unwise for clients to accept any ‘deals’ that remove avenues for recourse until the history of the products had been adequately inspected.

Intermediaries – the phrases “I didn’t understand the product or its risks” or “I relied upon the unblemished history of the manufacturer” are not a defense. The act of charging a client for investment advice infers that adequate research was conducted by the intermediary, who had a sound knowledge of the product and its appropriateness for the client. The intermediary’s defense of this position is further questionable if they had any aligned interest with the manufacturer. For those intermediaries in this position it may pay to seek independent legal advice now.

Clients –Whilst it can be argued that the intermediary is accountable for any investment advice received, clients have a responsibility to understand whether this advice is appropriate for their circumstances. In the absence of understanding, it is reasonable for the client to take no action until such a time that they are comfortable with what they are being advised to do.
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Wairarapa Building Society 4.99 3.55 3.49 -
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