Archive for the ‘Investing’ Category
Thursday, October 21st, 2010
So this week, much to everyone’s surprise, Beijing blinked.
For months, China has been under growing pressure to let the value of its currency, the yuan, rise to reflect China’s growing might and to meet America’s need for a weak currency export competitiveness boost to get it over this indigestion it’s still experiencing.
For months, China has resisted, while continuing to lap up US Treasury bonds, the next tranche of which was signalled this week by US Federal Reserve chair Ben Bernanke.
Already known already as “QE2”, or the second round of quantitative easing – the polite rich world way of saying “printing money” – there would appear to be a truck-load more American debt coming to market to keep things moving in the world’s biggest economy as the fiscal expansionism recedes.
Everywhere in the First World, governments are spending less than they were to keep the ship afloat during the financial crisis. Now, it seems, monetary policy will pick up some of the slack, leaving global interest rates low for the foreseeable future.
What a pity everyone’s too gun-shy to bolt for equities at times like this.
However, this week, the Chinese authorities signalled what everyone has suspected – their economy is growing far too fast, inflation is a risk, and it’s time to cool it. Data due for public release today should confirm this.
So, Chinese official interest rates went up, in the first serious response to Western pressure to recognise the inevitable: that China is getting rich fast, and that rich countries’ currencies get stronger.
Just one problem: unlike the West, there’s no market-driven link between official interest rates and the exchange rate. So, from a US perspective, the yuan is as undervalued as ever, since higher interest rates have had no impact on the currency.
Still, just to show they’re sometimes willing to play fair, China has changed one thing. Instead of raising its official interest rate by, say, 23 or 27 basis points, it has this time gone for 25 basis points.
To those who watch these things closely, that in itself is significant. The obtusity of picking interest rates that resembled but weren’t the same as the West’s was a long-standing part of Chinese Communist Party repartee.
The use of a 25 basis points move is seen as a finger-wave in the direction of falling into line with Rich World standard financial practice.
Meanwhile, in China itself, Fonterra has just announced it’s spending $42 million on another Chinese dairy farm, to be stocked with cows from New Zealand.
Not a huge purchase, but obviously important enough for Fonterra to drag a bunch of New Zealand journalists to Beijing to see the deal inked, among them our own Jonathan Underhill.
Intriguingly, given the debate at home on foreign ownership of farmland, the Fonterra deal is underpinned by a long-term lease, private ownership of land being impossible in the People’s Republic.
And the deal coincides, whether by design or accident, with an impassioned proposal from a Beijing resident Kiwi business leader for New Zealand to adopt a leasehold model to deal with New Zealanders’ fears about foreign farmland sales.
David Mahon is no dummy. He’s one of the most respected sources of advice for New Zealanders looking to trade in China and head of New Zealand Trade and Enterprise’s Beach Head Programme there.
By converting all farmland to leasehold, Mahon says New Zealand could more easily deal fairly and rationally with Chinese or any other foreign investor.
To do otherwise – especially to ban foreign farm ownership – would be an “irrational, retrograde and racist act,” Mahon says.
“New Zealand must not even suggest a return to those paranoid years.”
Could Mahon be onto something? The Save the Farms campaign has enough money to gain traction, and the festering national debate on foreign, especially Asian, farmland ownership continues. Could a leasehold approach lance the boil?
Think about it: the apparently unachievable demand by Federated Farmers chairman Don Nicolson for “reciprocity” of investment rules between nations that buy our farms would be achieved with Chinese investors if they could only buy long-term leases, not the land itself.
“The question before New Zealand is not how to block foreign investment in the agricultural sector, but rather how to prevent the purchase of agricultural land by interests that will not develop it to its full potential,” says Mahon.
“As long as land can be purchased without the obligation to use it for the common good of all New Zealanders, the country’s economic future, which depends so much upon agriculture, is in doubt.”
Of course, there are a few snags. Leasehold land is less valuable than freehold, so anyone looking to sell or concerned about the value of their land is not going to like it.
But hey. Just today, an anti-union protest in Wellington involving the groovily grungy film production community way out-numbered an earlier protest march marking a national day of trade union action and solidarity.
These are topsy-turvy times. Anything could happen.
Posted in Economy, Foreign Exchange, Investing, Politics | No Comments »
Tuesday, October 19th, 2010
Commerce Minister Simon Power is seeking feedback on proposed new regulations governing corporate trustees who are supposed to protect the interests of investors in unit trusts and various debt issues.
Power’s Securities Trustees and Statutory Supervisors Bill aims to tighten up the rules by requiring all trustees to be licensed by the Securities Commission (and later by its replacement Financial Markets Authority).
Under the licensing regime, trustees would need to demonstrate adequate monitoring systems and processes, experience and infrastructure and financial strength. Trustees would also have to report regularly to the Securities Commission on their compliance with the licensing regime.
Power’s discussion document notes: “As far back as 2004 the Financial Sector Assessment Program concluded that New Zealand places heavy reliance on private supervisors like trustees without requiring sufficient accountability for such supervisors.
It goes on: “The Registrar of Companies also noted specific problems with trustees following the finance company failures of 2006 to 2008, including a lack of capability, poor compliance with reporting requirements and weak trust deeds.”
In my view, Power is asking the wrong question. Instead of asking how to make trustees more accountable, he should be asking whether we should have trustees at all.
More than $5 billion of investors’ funds in finance companies, not including the South Canterbury Finance collapse, went down the toilet under the watchful eyes of trustees. All they seem good for is ticking boxes and, when all hope is lost, acting as undertakers by calling in the receivers.
Can anybody name a single instance of a trustee preventing investors’ money from being lost? Perpetual Trust, New Zealand Guardian Trust, Trustees Executors, Covenant Trustee Co.? I don’t think so.
All they have succeeded in doing is providing investors with an utterly false sense of protection.
The National Property Trust debacle earlier this year demonstrated trustees are more likely to act as roadblocks to investors’ wishes. Guardian Trust was intent of ignoring investors’ demands that National’s manager should be sacked after its parent company St Laurence Group went into receivership.
It was investor agitation amid complete inaction from Guardian Trust which resulted in the deal which internalised National’s management, cutting it loose from St Laurence.
Power’s proposed new regime will add further costs, which inevitably investors will pay, on top of existing trustee fees, generally a percentage of total assets and typically about 0.15%. The discussion document proposes a flat $1,242 annual fee per debt issue or unit trust, payable by the trustee.
But while investors’ money will pay the bills, effectively the new rules will still leave the debt issuer or unit trust manager in charge. In the case of unscrupulous issuers, the foxes will still be in charge of the hen house.
Would investors be any less protected without a trustee?
Posted in General, Investing, Personal Finance | 1 Comment »
Monday, September 27th, 2010
What’s best renting or buying? Radio New Zealand asked me that question last week, partly because another one of those affordability surveys had come out and headlines screamed out Queenstown and Auckland were the most unaffordable places to live.
One can ask why do you need a survey to tell you that? Queenstown is a very unique place in New Zealand and the home of some serious wealth. (Personally it hasn’t had that much appeal to me, but hey I enjoy Rotovegas!)
Auckland is a different story and illustrates why I don’t like these surveys – that is they are all about trying to say the housing market is one big amorphous mass. In reality it’s lots of little markets. You could even think of it in sharemarket terms where each individual house is a separate company listed on the exchange.
House, like shares, often trade at prices which are different to fundamental economic valuations. We see that in the housing market at present where prices are around five to six times the average wage, when three to four times is considered “fair value”.
Coming back to the story and the Auckland headline. It is silly to make such a bald statement as it is such a big market. Sure plenty of bits are seriously unaffordable, while others are the opposite.
After the RNZ interview I had a good yarn with Harcourts chief executive Hayden Duncan. While he had lots of interesting things to say one thing was the state of the market. It’s a two speed job at the moment with the middle and top end doing well with good sales volumes and prices and, if anything, a lack of stock on the market. Those who do sell are making reasonably quick sales at good prices.
At the other end of the market, which tends to be the preserve of first home buyers and property investors, it’s a different story. High stock levels, low sales volumes and soft prices.
To me this, along with current interest rate forecasts, suggests to me that it is a great time for both investors and first home buyers.
It’s quite a different story to what the affordability surveys show.
Posted in Investing, Property Investing | 1 Comment »
Thursday, September 23rd, 2010
We Kiwis have a bit of a fascination with house price stats, which probably is no surprise considering our so called love affair with bricks and mortar.
I suspect this penchant to look at house price stats will become even more interesting following the awful events in Christchurch earlier this month.
It’s our second biggest city and accounts for its fair share of house sales each month. However following the quake the market has stopped dead in its tracks.
Part of the reason is to do with insurance, or the lack of appetite for insurers to issue cover at the moment.
In coming months this is likely to distort the numbers produced by organisations like QV and REINZ.
But the quake also raises lots of other questions which will no doubt test the minds of property investors. One is that we often talk about the best house to buy as investments are low maintenance brick and tile properties.
Following the quake it seems most of the damage has been to these types of property rather than the wooden, weatherboard, tin roof type houses.
Also you have to wonder what will happen to house prices in the Garden City once sales start again. Will people, including investors, still want to buy property there? Or will they opt for other areas?
Maybe, if they are buying in Christchurch the criteria for may change and premiums will be paid for good quality buildings which have withstood the destruction unharmed?
Another thought which has crossed my mind is that maybe there is a potential “leaky home” type crisis brewing. Engineers certify a building is sound following the quake but years later some damage is found which is expensive to repair and impacts on the value of the property.
We’ve been keeping an eye on what is happen on Landlords.co.nz and the next issue of NZ Property Investor will have a feature on what the quake means for property investors. We’d love to hear your thoughts on what the big shake has meant for the property market and particularly investors. Leave a comment here or email your thoughts to editor@landlords.co.nz
Posted in General, Investing, Property Investing | No Comments »
Monday, September 20th, 2010
It’s been something of a rollercoaster for Nuplex over the last couple of years. At times, the board and senior management seem to have been out of touch with reality.
In May 2009 the NZSA wrote to 20 companies with an analysis showing they were carrying excessive debt based on their published 2008 annual reports. The market was outraged that we could be so “reckless” with our claims.
Provenco Cadmus (now in liquidation) came out bottom of the heap; Allied Farmers was not much better and almost all of the companies on the list subsequently went to the market to strengthen their balance sheets. So who was fooling who?
Nuplex was also on this list. Chairman Rob Aitken claimed our study was flawed. It is hard to see how he justified that position as just weeks earlier the company had been forced to ask shareholders for a bailout of biblical proportions. The reason – a huge debt to equity blowout!
Our study showed that even in June 2008 Nuplex may have been in breach of one bank covenant. Again, there was denial based on the company’s capital notes being equity rather than debt. This subtlety was probably lost on the capital note investors.
When debt covenants were officially breached due to the GFC a few months later, the company saw no reason to inform its owner shareholders, despite the situation being critical. In the latest annual report Aitken claims that “shareholder interests were preserved”. Try telling that to anyone unable to afford to take up the seven for one rights offer!
In April 2010 the Securities Commission announced action against Aitken and the company for breaching continuous disclosure rules. Aitken continues to protest that covenants are only a guide. Until the bank actually enforces its rights, he seems to hold the view that the shareholders don’t need to know, despite the fact that at that stage their investment is probably heading down the toilet.
Now the Nuplex board seems to have agreed that moving the company domicile to Australia is the next smart move. There are three reasons given.
Firstly, New Zealand dividends could be partially imputed. The company tells us that at present all corporate overheads are carried in New Zealand meaning there are no New Zealand profits to impute against. The usual situation is to recover overheads from subsidiaries and remit these, thus alleviating this burden. Quite why Nuplex cannot do this is something we are querying with them. In any event, it does not matter whether dividends are imputed or not. Either the company pays the tax and declares a lower dividend or the investor does so from a proportionately higher payout. The outcome is the same. Only the process differs.
Secondly, Aitken claims greater liquidity in the larger Australian market. Nuplex might end up around 172 on the ASX200 if they can meet the appropriate liquidity hurdle which would not be the case at the moment. This hardly positions them in the headlights. In New Zealand, they would drop to 46 on the NZX50. So, coverage would diminish and arguably reweighting by passive funds could depress the share price. On Friday 17 September, 54,750 NPX shares traded on the ASX and 321,848 on the NZX. NPX’s argument is not supported by the facts. The reality is a lose/lose situation.
The final reason is a re-rating of NPX shares over time. In our view, this will be influenced by the company’s performance rather than where it is domiciled. Off the radar and with modest liquidity at best, the shares may indeed be re-rated, but not necessarily in the direction Aitken expects.
It has been said that capital is easier to find in Australia. This is undoubtedly true, but NPX have plenty of headroom to grow. Debt to NTA is a modest 15%. Until such time as it is demonstrated that additional equity is unavailable, this is a non-reason.
There are compelling arguments for staying put. New Zealand has a free trade agreement with China, a large and growing market for NPX. Australia does not. This is a global company. It could be based anywhere from an operational perspective. Moving to Australia is no panacea. Look at Nufarm.
So what are the reasons? Could it be related to the majority of the board and many executives being Australian based? A fear of flying? Or perhaps the New Zealand directors fancy all that international travel? All the personnel took the job knowing the present situation. It is a bit rich to now find fault with it.
Certainly, the company has become staggeringly generous towards its top people since the gradual shift to Australia gained momentum and business picked up. Retired CEO John Hirst collected $4.2 million for his last 9.5 months including $1.4 million bonus and $1.9 million termination, not forgetting the $370,000 that he escaped paying when the executive share scheme was cancelled in 2009. New CEO Emery Severin has pocketed $415,000 in his first 2.5 months. The NZSA is not averse to rewarding good performance, but this is getting out of hand.
NPX is an iconic New Zealand company. A real “garage to global” success story. 81.6% of shares are held in NZ. NPX has been incredibly well supported by NZ investors. The NZ capital markets can ill afford to lose another primary listing.
There is no advantage to the majority of shareholders in moving the domicile.
Aitken could do well to reflect that ultimately shareholders will decide whether such a move is wise, and indeed whether he retains the confidence of the NZ majority owners.
To find out more and support the NZSA, join up online at www.nzshareholders.co.nz The best 30c per day you will ever invest!
Contributed by John Hawkins, NZSA Chairman.
Posted in Investing, Personal Finance | 5 Comments »
Tuesday, September 7th, 2010
Almost a year ago Brian Gaynor pointed out that three rural companies, PGG Wrightson, Pyne Gould Corporation, and New Zealand Farming Systems Uruguay with their interlocking boards, had squandered shareholder wealth to the tune of $880 million. Now, having cleared up numerous conflicts and governance problems, appointing John Parker as chair and with new faces in the Management Company, Farming Systems Uruguay is under offer.
First Singapore-based Olam secured a commitment from Manager PGG Wrightson, to buy all its shares at 55c each. Why did PGW break all advisers guidelines again, and immediately jump at the offer. Could it be PGW knew there were others in the background?
Then a competing bid was received from Uruguay’s Union Agriculture Group at 60c each. The independent board members including Craig Norgate and Murray Flett, issued a strong rebuff, supported by a Grant Samuels’ opinion. This priced the shares between 65 and 79c each, and allocated an NTA of over $0.90/share.
The plot thickened with John Parker’s announcement that a mystery buyer was interested in buying out the PGW loan, and providing $60 million funding for the final stages of development. Nothing has been heard since.
NZFSU guidance was a loss of $10 million based on a conservative production forecast and a milk price of 25c/litre. This has been vindicated by the recent annual result. Production for the year was up 52% while expenses rose only 12%. The company hopes for a profit in 2012. Were the two buyers attracted by the large tax incentive, just confirmed by the Uruguayan tax office, or were they simply taking advantage of the cheap farm prices they see in this balance sheet?
Finally the Olam offer was increased to 70c/share – the middle of the Grant Samuel’s range, and the independent directors have recommended partial acceptance of the offer. This is an unusual recommendation which they have emphasised by stating that Olam would better as a corner-stone shareholder at 51%, rather than an outright owner.
On the face of it, the offer may seem attractive. Some valuations based on discounted cash flow of average past earnings are very low. The company bought too much overvalued land in the 2008 year at an average US$4600/ha. Latest sales at $3600/ha indicate a gap between market value and cost, although the company says it has already taken the required write-downs. The managing company, PGW (which in the face of severe criticism reduced its commission rates,) has now negotiated termination of its management. This is a positive because although Keith Smith claimed in the original prospectus for NZFSU that “PGG Wrightson had an unmatched combination of knowledge, experience and demonstrated capability… to create a profitable farming business in Uruguay,” PGW never really proved that, in buying land, meeting forecasts, or establishing production.
It is hard to work out just how important NZ Farming Systems Uruguay is to PGW because it earns contributions from seeds, and financial services outside its management fee plus dividends from the Uruguayan company. There is also the potentially unstable political situation in Uruguay. Could a successful corporate farming venture be nationalised in future? Some Sharechat readers have commented that there is no room for corporate overheads in a dairy farming business. They forget that the two margin model of share milking is common throughout the industry.
Perhaps shareholders should take a longer term view. The current milk price is steadily above the 25c of the forecast. Demand is increasing substantially in developing markets. NZFSU is at an early stage of its life. Its existing farms are capable of producing a profit of $35 -40 million by the 2014-15 year. Its governance problems have largely been corrected, a new CEO is to be appointed and other management internalised.
As long as the operators are allowed to achieve results without directors squandering their efforts, as happened in PGG Wrightson, this company could perform for shareholders, Uruguay, and the New Zealand economy. Too often do we see NZ directors and shareholders selling out too early, at a low price, leaving us all with the impossible invisibles balance that year after year undermines our balance of payments.
Contributed by Alan Best. NZSA Director
Posted in Investing | 3 Comments »
Tuesday, August 24th, 2010
Now, the government has an economic story to tell.
By reframing as a national savings issue the sterile debates about superannuation, privatisation, private foreign debt levels and the sale of farmland to foreigners, the potential is there to de-fang several political bugbears at once.
There is a compelling simplicity, too, to the idea of talking about how we save more, rather than what we spend the savings on; this being the point at which the debate so often goes off-track.
With the current national pension system off-limits for consideration by the new Savings Working Group (SWG), there’s an opening for a process that isn’t tinged with outrage and fear of a Trojan Horse attack on the elderly.
By taking the heat off the question of compulsion and allowing the SWG – surely not the best acronym in the context of this week’s alcohol reforms – to look also at the tax system, Finance Minister Bill English rightly identifies that any serious look at savings culture will also need to consider taxing culture.
The notion of taxing savings differently from labour is intriguing. Watch this space on that one, but the Australian tax review suggested certain approved savings should be taxed at a discount to income tax.
Whether a government would ever be bold enough to index tax rates on savings against inflation remains to be seen. English has put it on the table, but not with great enthusiasm.
By applying indexation only to savings, he would avoid robbing future Treasurers of their trustiest weapons of mass tax-gathering: fiscal drag. Perhaps there’s a half-way house available on that one.
Already usefully established is the rejection of capital gains and land taxes, both of which were ruled out by the Tax Working Group, whose year-long deliberations produced a benign atmosphere for a GST increase and wide public support for the personal income tax cuts that will kick in on October 1.
Granted, the SWG doesn’t have a year to create consensus. It has until December, in fact, which could be said to be a bit of a rush. Its report will be published in January, setting the political agenda for the start of election year, and condemning a lot of officials to a busy Christmas.
Nor is it all plain political sailing. If, as English hinted today, a softer tax treatment for savings were offset by axing the $1 billion in government subsidies going to KiwiSaver accounts annually, he could well have a fight on his hands with the higher income parts of middle New Zealand whom he needs to vote National.
However, the timing looks right, though, if Prime Minister John Key wants a coherent savings platform to campaign on next year, and results he could turn into initiatives for the May 2011 Budget. On top of that, much of the work has already been done.
The enormous volume of research produced for the Capital Markets Development Taskforce would be as good a place as any for the savings group to start for recent work on New Zealand’s savings options and deficiencies.
In no time at all, the group will conclude that one of the biggest savings deficits in New Zealand is the lack of good businesses to invest in at home.
While there’s plenty of private wealth and private equity at work, the public capital markets are anemic, the dairy industry’s tied up in cooperative ownership, the banks are Australian-owned, and just about everything else of scale is owned by the government, both central and local.
The CMDT report strongly recommended partially privatised state-owned businesses, especially if the local control can be demonstrably entrenched to deal with the national economic sovereignty issues that the P word arouses.
If at least a chunk of the savings to make such investments in New Zealand businesses comes from the investment of compulsory retirement savings plans, then there may not be much public opposition to compulsion either.
Expect to hear a lot about the middle-aged cafeteria worker from Sydney who just loves her compulsory super savings.
From there, a new, more confident platform starts to emerge for New Zealanders nervous about the seemingly unstoppable “loss” of New Zealand assets to foreign owners. Instead of cringing defiance, we get organised about our money and start building ourselves back up.
That, in the end, is the only way New Zealand will maintain the degree of independence that the founders of the SaveTheFarms and other anti-foreign direct investment lobbies seek.
Petitions and protest might slow things down, but for as long as the outsiders have the money to buy what we at home can’t afford, the rot – if it’s really that – will only get worse.
The slightly cynical appeal of this platform for re-election is the way it marries both economic nationalism – a protectionist, anti-globalisation instinct – and economic rationalism, which the pursuit of coherent savings incentives would foster without closing the door to foreign capital.
It should be a platform that can be pitched simply to the right of centre in New Zealand politics, where National still seeks to be, and in campaigning, simplicity is everything.
It may not look it now and it may not come to pass, but today’s announcements create the bones of the most significant shift in economic orientation in a generation.
Here’s hoping something good comes of it.
Posted in Investing, Personal Finance, Politics | 1 Comment »
Monday, July 26th, 2010
Share prices can be quite volatile and regularly rise and fall. Investors who hold profitable share portfolios inevitably want to protect their profits. Hedging is a popular way to do this.
For example, as a trader you may have an optimistic long-term view on a stock in your portfolio, however in the short term, you may think the share price will track sideways or even fall. When faced with this situation, instead of selling the stock where you may incur a loss, or CGT event, you might choose to protect your position by hedging.
Hedging is a trading technique that enables you to protect your stock portfolio against sudden and unexpected losses. Hedging also affords you increased flexibility to remain in investments when you may otherwise have been forced to exit at a substantial loss. It is up to the individual how many trades they choose to hedge.
A Contract for Difference, or CFD, is an effective instrument to use as part of your hedging strategy. They can be used to help shield an existing share, CFD position or your total portfolio. CFDs are financial derivative instruments that allow you to profit from both rising and falling markets. Since a CFD is a margined product, you can use its leverage to protect the total value of a position whilst only having to outlay from as little as 5% capital.
Why hedge with CFDs
CFDs are an effective hedging tool for the following reasons:
• Low costs
The low margin/deposit requirements and transaction costs associated with CFDs allow you to hedge your share portfolio at a fraction of the cost.
• Most CFDs have no set expiry date
The majority of CFDs have no set expiry so you are not committed to hedge for a fixed term.
• CFDs have low minimum deal sizes
You can open a share CFD position from as little as 1 contract, enabling you to tailor the hedge to your portfolio.
• CFD availability
A huge range of local and international share CFDs are available, plus you can also access indices, forex, commodities and much more.
• Short CFD positions generally earn interest
Most CFD providers will pay you interest on the full value of the short CFD position while it is in place.
How does hedging with CFDs work?
So how does it work? It’s 3 June and you believe the price BHP will fall. To protect your long-term position from a potential loss, you decide to go short by selling 1000 BHP shares as a CFD at $38.00.
On 7 June, you believe the price of your BHP shares are about to resume their recovery. Based on this, you choose to close your CFD position by buying back the CFD at $36.85, giving you a profit of $1.15 per share or $1,150^.
In this example, you have used CFDs to protect your physical position during the fall period (and made a profit), but in the long-term your shares have remained in your portfolio and you can continue to capture any further potential gains.
To learn more about the benefits of CFD trading (Link to: www.igmarkets.co.nz) visit IG Markets, the world’s No.1 CFD provider*.
Trading CFDs may not be suitable for everyone so please make sure you fully understand the risks involved. The Product Disclosure Statement for this product is available from IG Markets – you should consider it before you enter into any transaction with us.
^ This example does not take into account interest, dividends, commission, variation margin and other fees and charges which may apply.
* Largest retail CFD provider by revenue (excluding FX). Source: Published financial statements. As at November 2009.
Posted in Investing, Personal Finance | No Comments »
Friday, July 23rd, 2010
What planet is Gareth Morgan on? His rant, I mean article, in the NZ Herald this week attacking advisers is an odious, boring piece of copy which is best used to wrap up fish and chips.
I wonder if it was timed to coincide with the Institute of Financial Advisers conference which I have been at this week. As it turned out it was published on the day the Code Committee and Commissioner of Financial Advisers, David Mayhew, addressed the conference.
Morgan’s piece was a talking point of the conference. A common theme being here he goes again.
One highly placed man in adviserland described it to me like this: “My eyes glazed over after the first couple of paragraphs.”
“Gareth’s an unhappy man.”
Sure some of Morgan’s points maybe valid, but not all of them. His claim that the Code Committee is subject to “industry capture” is plain wrong. This group has worked diligently to deal with some difficult and complex issues and it has listened to submissions from a wide range of people and organisations.
The Code has to be approved by the Commissioner and also the Minister of Commerce. They won’t be signing it off it it doesn’t meet the requirements of the Act.
A huge amount of time and effort has been put into creating a set of minimum standards for advisers. Thousands of advisers have been working hard on meeting these new requirements which come into force next year.
Why oh why do people like Morgan and Consumer go out of their way to build up this public perception that all financial advisers are bad. There are plenty of excellent and professional advisers helping New Zealanders.
Using the Consumer Institute mystery shop of advisers as proof the sector is flawed is in itself flawed logic.
The mystery shop has been discredited by Auckland University Director of Research and Policy Solutions Dr Michael Mintrom.
The survey is like Morgan’s book he talked about, After the Panic. Full of errors. In fact his book was so inaccurate it had to be pulled off the shop shelves and fixed.
If there is a problem, then it rests with product providers and investors themselves. There have been plenty of investments allowed into the market that have been duds and failed to deliver promised returns.
Secondly, as I have said countless times, the majority of people who lost money in finance companies chose to make the investment themselves. They did not use intermediaries such as advisers.
The main issue is here we have someone who is both and adviser and a fund manager criticising the adviser reforms. It seems there is only one good adviser in New Zealand – Gareth Morgan.
The good thing is that once the Code is implemented Gareth will have to become an AFA. One of the items in the code is about good behaviour. Will it make Gareth shut up?
Posted in Investing, Personal Finance | 1 Comment »
Wednesday, July 14th, 2010
After contributing to a famous victory against the forces of financial bigness you’d think the Frozen Funds Group (FFG) would want to chill out a little.
But, no, the group that ran a truly brilliant consumer campaign against the ANZ/ING conglomerate and its imploded CDO funds, wants more; it wants blood on the floor.
The FFG has just embarked on a campaign to have ING (now, of course, wholly-owned by ANZ) struck off as a default KiwiSaver provider.
In a message sent out this week the FFG notes: “More than 14,000 elderly New Zealanders have seen the financial security under their retirement jeopardised by the behaviour of ANZ/ING… We believe the 300,000 New Zealanders who are currently saving for their retirement via ANZ/ING – as one of the nation’s default KiwiSaver providers – are facing exactly the same future.”
This is the point, I believe, that the FFG has, in sitcom terms, ‘jumped the shark’.
The group lists four arguments why ING should be relieved of its default KiwiSaver status – all of which can be distilled down to a single point: revenge.
This is about payback, not fair compensation or just punishment.
Commerce Minister Simon Power has reportedly dismissed the FFG’s demand – if so, that’s the right call.
The six default schemes are by law conservatively invested and the most closely monitored of all KiwiSaver products. These strict controls make them behave almost identically.
And if association with a loss-making fund was criteria for the removal of default status not one of the six providers – AXA, AMP, ING, Mercer, Tower and ASB – would be immune.
The CDO debacle has cost ANZ/ING a fair whack both in monetary terms and reputation. It’s probably true that the bank paid out the quoted amount of about $550 million to investors as a business decision rather than a moral one – but so what?
Because the bank wants to remain in business, those frozen fund investors received pretty reasonable compensation in the circumstances and it was ANZ/ING shareholders wearing the costs.
As the FFG looks to twist the knife still further into the hated big Aussie bank perhaps it could spare a thought for the many thousands of other investors who have either lost almost everything in finance firms less committed to longevity or passed their contingent liabilities onto taxpayers who, according to the latest government accounts, could be up for almost $1 billion.
Posted in Investing, Personal Finance | 1 Comment »
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4290.70 |
|
16.50 |
| Dow Jones Industrials |
12878.20 |
|
33.10 |
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Most Commented On
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