“Everything was going OK until this damn Greek thing happened,” a financial adviser muttered to me at a conference.
Really, I was just asking after his personal health but the recent market ‘jitters’ (as journalists are required by law to describe share index fluctuations) must’ve been weighing heavily on his mind.
And, indeed, the relative calm of the last few months appears to have ended; down one day , up the next.
Share price fluctuations are, of course, perfectly normal – it’s just the scale and frequency of them that market watchers like to watch. One very popular measure of this market volatility is the VIX, which since the collapse of Lehman Brothers in 2008 has become the subject of dinner table conversation (although not at my house).
In the last week or so the VIX has been on the move up again, indicating more trouble ahead. Or maybe not, as this very niche website ‘Vix and More‘ points out. (Go there also to discover the 10 things “everyone should know about the VIX“.)
According to the Merriam-Webster online dictionary, the origin of the word ‘jitter‘ is unknown but its meaning is clear enough, which in plural form is described as “a sense of panic or extreme nervousness”.
The word also has a technical meaning in the high-frequency digital signal industry. Look it up on Wikipedia. There you will find some brilliant uses of ‘jitter’ such as ‘random jitter’, ‘total jitter’, ‘jitter buffers’ or, my favourite, ‘dejitterizer’, a weapon that could come in handy right now.
The Commerce Commission has gone for a simple design with its new website – off-the-shelf logos, a small splash of colour, clean font (Georgia) and, thankfully, no tedious video introductions or complex interactive facilities.
But while I appreciated the design effort, for my purposes the content was a bit light. In particular, I was looking for a press release titled ‘Commerce Commission releases decision on ING CDO funds’, or something equally bland. But it wasn’t there.
It has been over a month since the last time the Commission said it needed another month to complete its “ongoing discussions” with ANZ, the owner and part-distributor of the ING funds.
In fact, the Commission said it needed “at least” another month to barter with ANZ (despite the fact a decision has already been made), which leaves it nicely open-ended and with plenty of scope for conspiracy theories to flourish.
The statement quotes Commerce Commission Auckland fair trading manager, Graham Gill, saying:
“Generally we urge consumers to shop around. Look at all fees being charged by all lenders, including exception fees or other default fees, and if the fees are too high, vote with your feet and go to another provider.”
Graham’s right, in theory, but it’s not necessarily that easy to find and weigh up the value of all the different charges banks might hit you with.
And if something as relatively simple as managing a bank account can befuddle us, you can perhaps forgive the Commerce Commission for dragging its heels on the CDO decision.
But would higher levels of financial literacy have protected New Zealand consumers from the CDO fiasco, or bank fee-gouging for that matter?
Financial Times writer Michael Skapinker argues in a column this week , that financial literacy only goes so far, which is not very.
Skapinker cites a paper by Lauren Willis, a professor at Loyola law school in Los Angeles, titled ‘Against financial literacy education’ as his inspiration.
“Teaching financial literacy is not like telling people that smoking kills or how to engage in safe sex, where the message is straightforward and unchanging,” Skapinker says. “Even if consumers could master the intricacies of money management, the speed of financial innovation means much of what they learn would soon be out of date.”
The biggest, and best, news for savers in the latest budget was the reduction in PIE tax rates in line with marginal income tax levels.
This was something of a relief for the savings industry, which was slightly nervous the government would remove the tax incentives for investing in PIEs.
In effect, Bill English has maintained the PIE status quo, enabling medium to low income-earners to apply their marginal tax rates to investment returns and aligning the top PIE rate with the new company tax of 28%.
As it stands, the incentives to invest in PIEs for those on the new top tax rate of 33% will only be slightly less attractive than currently where the highest marginal rate is 38% versus the maximum PIE tax of 30%.
Products such as the popular cash PIEs will remain on the menu.
The changes also apply to the withholding tax rates levied by banks and other financial institutions, which the government says will automatically adjust once the new rates become effective in October.
As I discussed in a previous blog the bank withholding tax rates have only recently been aligned with personal tax rates but those on the lowest tax rate, which drops to 10.5% from 12.5%, will have to alert their financial institution about their status, as will those in KiwiSaver schemes, if they haven’t done so already.
The tax reduction is also a fillip for KiwiSavers, who should see higher long-term earnings as a result. Compared to Australia, where super earnings rates enjoy a substantial tax incentive, this is relatively minor but it’s better than nothing.
The government estimates that after the changes “a worker earning $48,000 a year who joins KiwiSaver at age 25 will be over $11,700 better off upon reaching the retirement age of 65″, which doesn’t really sound like much in the context of 40 years of saving but rather you get it than them.
Curiously, the government release also includes a free ad for banks where it says if the same worker threw all their tax cuts into a term deposit “they would be $78,000 better off upon retirement”.
As the world now knows, Bob Jones and Chris Lee had a thing goin’ on.
And because it was much too strong for either Jones or Lee to let go, the result was a highly entertaining court case that titillated the nation last week.
I can’t discuss the details of the case, mainly because I don’t know them, but, allegedly, the spectacle of these two heavyweights slugging it out in court drew quite a crowd.
According to sources, the Wellington courtroom was packed full of investment types cheering on property magnate Sir Robert Jones in his, ultimately successful, defamation battle against the Kapiti-based sharebroker Lee.
For Lee has offended plenty of investment managers in his time via his colourful newsletter, with his opinions often widely distributed in the mainstream media.
In this case, a jury has decided that Lee has over-stepped the blurry border between opinion and defamation. Even if Lee can shrug off the $104,000 (plus costs) financial penalty it must have hurt the ego a little.
But has the decision stifled the atmosphere for ‘frank and open’ public debate about the merits of particular investment offerings? Possibly.
Lee will soon be governed by new regulations about to be imposed on the financial advisory sector, which he also rankles against. In his submission to the committee writing the Code of Professional Conduct for authorised financial advisers (AFAs), Lee took exception to the proposed rule that: “An AFA must not do anything that would bring the AFA, or financial advisers generally, into disrepute.”
Lee asked whether the rule meant “AFAs must not criticise their industry, or practices with which they disagree?”.
“The industry should not fear strong public debate on contentious matters; nor should the regulator… There must be a better way of discouraging boorish behaviour, as opposed to criticism or debate,” he says in the submission.
Banks have spent zillions of dollars over the years attempting to bond personally with their existing and potential customers.
This is a waste of money.
People will never love banks – our relationships with financial institutions are necessarily fraught, and tainted by the, not wholly unjustified, suspicion that we’re being clipped all over the show for services of dubious value.
But this news just in from Australia about a lawsuit of historic proportions being launched against banks, demonstrates just how deep the vein of bank-hate runs.
The people’s comments on the Sydney Morning Herald drip with vitriol and spite, perfect ingredients for legal action.
But it’s not all one-way traffic, some of the co-respondents hate lawyers as well.
Mick of Brisbane puts it simply: “I hate banks, but I hate lawyers more. I smell a rat.”
IMF, the Perth-based listed litigation firm pursuing the bank charge along with its subsidiary Financial Redress, is an interesting crowd – check out its impressive list of “completed cases” for a sense of its broad ambit.
Also note IMF’s intellectual campaign against the ancient laws of ‘champerty’, which, according to one online definition, is: “an unethical agreement between an attorney and client that the attorney would sue and pay the costs of the client’s suit in return for a portion of the damages awarded.”
Other champerty definitions are not quite so judgmental with this one noting it is quite legal in many jurisdictions today.
IMF’s current bank attack is limited to Australia but the firm has recently turned up in New Zealand, encouraged, as this March 2010 newsletter says (page 6), by a recent High Court decision in the Feltex case.
This is a business, however, not a social welfare exercise. IMF says it will only charge a 25% success fee if it wins its case against the Australian banks.
I’m not sure if that’s after IMF costs have been deducted, I’ll have to check the fine print.
Just as New Zealand’s courts are filling up with the tail-end of claims against now-disgraced financial firms – Bridgecorp and Blue Chip, for example, other jurisdictions are going through a similar process.
The big news, of course, is the US regulator’s tilt at Goldman Sachs, which has estimated its legal costs will skyrocket as the action proceeds.
The lawyers will be happy but the public may also be served with an education about how these firms actually run. I look forward to further updates.
But already there is enough happening already in our own neck of the woods. Across the Tasman, for instance, the once-mighty Gold Coast-based MFS is having its dirty laundry aired before the courts.
This chronology on the Australian Delisted website gives an almost up-to-date version of the story so far.
But the latest report on the MFS case, which is being heard in the NSW Supreme Court, includes this fascinating email from the company’s boss, Michael King, explaining in detail to his chief financial officer why he wanted to borrow another $100 million or so quickly.
“I want the money in the can asap,” King wrote, “so we can do a heap of things’.”
Which, as anyone familiar with the history of the South Seas Bubble will know, sounds eerily like the famous UK IPO promotional material circa 1720 from a company that wanted money for: “For carrying-on an undertaking of great advantage but no-one to know what it is.”
Apparently, the promoters raised about £2000 for this venture. I’m not sure what happened to the money, or the entrepreneurs who raised it – a happy retirement on the Gold Coast maybe?
I was inspired on the way to kindy this morning when the Monty Python ‘Money song’ bizarrely came on the radio (what fabulous programming) to search out 10 songs about money.
There are hundreds, probably thousands, of songs on the subject, so to limit the universe I decreed that ‘money’ had to be in the title.
My list, I must admit, is not very adventurous but it’s 5 o’clock already, time to go. Though I am quite pleased with the Prince Charles number, whose name, I’ve just realised, explains why there is a Princess Di look-alike jumping around the stage in an apricot silk dress.
Anyway, would love to hear your nominations for best songs about money.
The suggestion that more New Zealanders will move to Australia now that its superannuation contribution rate will rise to 12% is another absurd example of the pathetic politics of envy common to this country.
Whether Australia’s superannuation contribution rate is the current 9% or 12% (which it will slowly edge up to by 2019) is neither here nor there to most people.
New Zealanders move to Australia because they can make more money; the weather’s generally better (if you don’t mind the mix of drought and floods), and; the people are alright once you get to know them.
But New Zealand’s financial services industry looks across the Tasman and salivates about Australia’s compulsory superannuation system because it knows that if compulsion were introduced here it would feed them forever.
When those who stand to gain commercially from compulsory KiwiSaver start couching their arguments in terms of the national interest, be very suspicious.
While it has undoubtedly built up a significant pool of capital, Australia’s compulsory superannuation system is not without its problems – it’s complex, prone to constant tinkering and, as Sydney Morning Herald writer, Michael West points out, needs constant attention to prevent gouging at all levels.
By contrast, KiwiSaver is administratively simple, wonderfully flexible and should impose less costs on members. With well over one million New Zealanders already signed up to KiwiSaver, it seems incentives are doing the trick.
It is true that contribution rates are low compared to Australia. Under the KiwiSaver rules, only the 2% employer contribution is tax-free (to get that employees must also contribute 2% of their gross wage or salary). However, members are free to contribute up to 8% of their income to KiwiSaver, which combined with the employer contribution quickly bumps up the savings rate to 10%.
The only problem with this strategy is that you still need to pay income tax on that 8%. Rather than compulsion, perhaps a better way to ramp up KiwiSaver accumulation rates would be to allow those extra contributions to be tax-free: more carrots, less stick.
Isn’t it funny how you never see photographs of people smoking these days? From my experience of events like this there’s always decent photo opportunities in the smokers’ corner but the photographer has neglected them – note the proliferation of beer and wine glasses, though.
The pics in question appear to be from last year’s INFINZ (Institute of Finance Professionals of New Zealand Inc) awards night, not the 2010 event, which received so much press coverage this week (I wasn’t invited).
Despite the many news stories mentioning the INFINZ night of nights the actual awards winners got buried in the avalanche of news that thundered out of Simon Power’s speech to the gathering of finance’s finest. The INFINZ website looks like it needs an update too, as I couldn’t find any reference to 2010 on it.
Nevermind, Power had much to say including: announcing the new uber-regulator, the Financial Markets Authority; upgrades to KiwiSaver, and; extensions and alterations for the new, but leaky, financial advisory regime.
Looks like Power could’ve banged on for ages more but was constrained by the imminent awards ceremony and the serving of dessert.
“There is more to come, including a discussion paper on our securities laws that is due to be released in the next few weeks,” he told the INFINZ crowd. “Watch this space.”
There’s hardly a news vacuum at the moment – space is at a premium. But I have been watching the space between Power’s lines in this story where he denies the government will ban adviser commissions, as Australia has recently done.
“However, I currently have no plans to mirror this initiative in New Zealand law.” Power says.
After all the Australian and New Zealand governments are not joined at the hip. And it was just a coincidence that Australia and New Zealand jacked up the price of cigarettes on the same day.
I currently have no plans to take up smoking. But I wouldn’t mind a drink.
I don’t know exactly how many stories I’ve written on the subject of financial adviser commissions but it’s lots.
This one, penned about a year ago for the Herald, will do as an example. Reading it 12 months on I can hardly fault it, except, maybe, my last sentence, which began “Australia is a long way from banning commissions”.
It was probably the first of Australia’s Storm scandals that sealed the end for commissions. The current disgrace facing Melbourne’s rugby league team is nothing compared to the $3 billion disaster known as Storm Financial.
Mark Weir, who heads the action group seeking recompense for Storm Financial clients, surprisingly had little truck with the commission ban.
“If they want to [improve] the integrity of the industry, they should be introducing some mechanism to determine if they’re lying,’ he said.
“Everything should be taped and kept on a database that ASIC [the Australian Securities and Investment Commission] could have access to. That way it would keep people honest.
“The greed doesn’t start with the financial planner, it starts with those people who own the products, and that is the banks.”
But why is greed so contagious? You could argue, which the Australian and UK governments have, that commissions help spread the virus.
The New Zealand government, absorbed with its own reform of the financial advisory sector, will be under immense pressure to join the ‘death to commissions’ club.
The lobby group representing big fund managers and insurers, the Investment Savings and Insurance Association (ISI) also reacted immediately to the Australian news.
In a statement, Vance Arkinstall, ISI chief, said: “In NZ, ISI is finalising an announcement that will result in a voluntary policy to discontinue the payment of commissions on investment products, including KiwiSaver. The proposed ISI policy will include the discontinuance of volume-based performance bonuses or commission and ongoing renewal commissions.”
Note the voluntary nature of the ISI proposal but compulsion will no doubt follow.
The upshot of all of this is that consumers will have to learn to explicitly pay for advice, which, as Ian Cowie in the UK Daily Telegraph argues will be good for everybody.
But please excuse me, I’ve been over this before. In hindsight, I should’ve used an old story and just charged for it again, and again, and again…
