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Health Funds Report - A Primer

Before one can engage in a sensible debate about health we need to accept some facts about how provision is handled. Before that one has to let go of a starting point that almost every compassionate person, myself included, has begun from. It's my naive first view, and it was this: "All healthcare should be provided free of charge to everyone".

If it sounds callous to say this is naive then as soon as we look at some real life scenarios we begin to see the problem.

1) Funds are limited. We are faced with choices. At the extreme it's between, say, cosmetic surgery to remove a mole, and a life-saving heart op. OK, we all opt for the heart op. Immediately the first word of our naive position has been broken down. Choices must be made. We presently use waiting lists as a tool for making heartbreakingly difficult decisions about who gets the healthcare we want them to have.

2) Incentives count. Altering the cost of behaviour has an effect on it. Fewer people smoke now the cigarettes cost so much. It is a cost for the behviour. Obesity has been described as an 'epidemic' by some reinsurers. Swiss Re has a great report on this. If it were possible to provide a financial disincentive to being very, very, overweight - then fewer people would do it. To what extent should we as a society underwrite risky behaviour - like the man who had to be rescued twice by our Navy on the high seas. This undermines the second part of the naive position.

Once you accept that there are limits, the next question is how best to fund health. The report for the Health Funds Association logically suggests that to get middle to upper income earners to pay for more of their own healthcare some tax breaks would need to be offered. This thoughtful report by Kim von Lanthen is better and broader than past narrow calls for Health Insurance to be tax deductible. Yet sadly that was the basis on which the report was dismissed recently.

Critically no tax break would be offered with added obligations - i.e. for middle and upper income earners to pay for much of their own healthcare. This is a much bigger thought than 'lets give the rich 39% of their medical insurance premium back' which would not alter much at all.

email me at russell.hutchinson@chatswood.co.nz for more information.

FPIA Member Survey 2004/5


Anyone that thinks our industry has no more change coming has not been paying attention. With more legislative and Regulatory changes planned in the next three to five years than have been applied to the industry in the last ten there are definitely big changes ahead.

The big issues are centered on how demographic and compliance changes will affect advisers.

• Structure: Are advisers ready for ‘dealer group’-like structures?
• Demographics: How are advisers changing their product lines with the age of the client bases?
• Compliance: Will business values fall during a compliance shift? Then where will they go?
• Fees and commission: have been falling for the last two years – how will reductions in commissions affect adviser numbers, income, and business structure?
• Leadership: Who is leading in financial services? What are the big issues? Who are the most-admired brands in the financial services world?

Tracking Information

We will continue to maintain tracking data for the third survey running on the following areas in order to build up trend lines or spot inflection points in these vital statistics.

• Technology use: hardware, software, internet use, and mobile platforms.
• Platforms: adviser site shares of investment management platforms.
• Media preferred by advisers: what advisers are reading and how they like it.
• Revenue and Incomes: how much advisers make, and sources of income.
• Client base: the size, use, and servicing of client bases.
• Business size: size and support staff.

Industry Issues

As ever, we seek adviser views on the current hot topics of the day.


Important notes: the survey report is the property of the FPIA. Amounts below exclude GST.
Pre-Orders - ordered prior to survey 24 December 2004 are $3,000
Customised Question Segment is $1,000
Post-Orders - ordered post-survey are $4,000


To inquire about the FPIA Member Survey 2004/5 please contact: Soohun Kyung or Russell Hutchinson

Ph: (09) 489 2130
Mobile: (021) 764 606
Email: russell.hutchinson@chatswood.co.nz
Fax: (09) 419 5118

The Key to Successful Mergers... don't touch the computer system!

This article talks about why ANZ and National Bank will not share a computer system in New Zealand. The logic, at least in the short-term, is impeccable. The cost of losing just 1% of clients would outweigh the savings.

I can sympathise, having worked with a couple of companies who have looked askance at systems in businesses they are buying or merging and wondered - can we ever make these work together? Often thts based on the fact the two businesses had very different approaches to products - its not an IT issue, as a systems manifestation of a business issue.

But legacy systems are a very real pain in the neck. At some stage ANZ National will bring these together. Sooner or later customers will complain that they can't use each other's facilities. The bank will want to track customer value across the two. One day both systems will need replacing and doing so with a single common system will make sense.

A small disclosure, I am a very small shareholder in ANZ. So, best finish on a little financial upside: most mergers destroy shareholder value, and this one seems to be doing the opposite. Furthermore, ANZ's share price is near a five year high. So they must be doing something right.

Finance Companies Spotlight


The focus on finance companies is getting nastier.

This article says that "Everyone" is "Running Scared". Although we don't actually have figures on net funds flow to/from finance companies - so we don't know, but I suppose you've got to sell newspapers somehow.

The article points to Chris Lee as being the only planner prepared to identify the finance companies that you should avoid. In addition there are a number of places you can go to get ratings and recommendations on where your money should go if you are looking for these kinds of bonds. There is a link to another one below.

Two questions occur in relation to the SST article; why single out finance companies? why not recommend bond rating? There are plenty of junk bond issues out there with dubious compensation for risk in the proposed return. While rating retail bond issues is not a requirement in New Zealand, some reasonable rating facilities exist. Here is one: www.bondwatch.co.nz

One of our readers made the following comment as well:

"I appreciate your comments about selling newspapers - as you know in the press the market either 'soars', or it 'plunges'. It is just not news to say the market did nothing! But maybe the editors of the big local rags have all gone short property, and the fastest way to get prices down is panic everyone into exiting their property debentures at once - Its happened in Australia in 1991 - the Australian Government had to launch a lifeboat and legislate that all unlisted property trusts had to list at huge discounts to asset value to create liquidity in their units."

Anyone for an Islamic Life?

Nope, no prosyletizing here. ING Life's exploration of "Al-takaful" products is interesting. I had a chat with Grant Evitt at ING Life recently and he said that some of these products are adopted by non-muslims. Given that the products are complicated, and complexity usually shows up sooner or later as more expensive, I wondered why. Well, it turns out that a 30 year Al-Takaful mortgage is effectively fixed rate. Fixed rate loans of long durations have proven popular in lots of markets.

Credible Cause To Believe

Some work by two economists has recently been recognised:

"This year's Nobel prize, awarded on October 11th to an American, Edward Prescott, of Arizona State University, and a Norwegian, Finn Kydland, of Carnegie Mellon University, honours research that has helped improve the practice of economic policy, as well as economists' understanding of booms and busts."

The interesting thing about their work is that it focused on how credible government policy is in the eyes of its people. Using examples like trying to discourage people from building houses in areas likely to be affected by hurricanes the authors argued persuasively that people are not easily fooled by government statements. There has to be "time consistency" before people really believe that things have changed - like a long term commitment to a low inflation environment.

This stuff has a great deal of relevance for those of us who wonder why people don't save more (for any reason, to increase income, retirement, etc).

"The laureates focused on two areas where time consistency is most vexing: taxation and monetary policy. Suppose, for example, that a government promises that it will keep taxes on capital low in the future in order to encourage saving today. When the future comes, however, it has an incentive to tax accumulated capital heavily. Anticipating confiscatory taxes in the future, citizens will not save their money at all, but spend it before the government can grab it."

Here in New Zealand we have a long history of taxing our people too much. Broken only by a relatively brief period of liberalisation. That has been beneficial. But if voters believe that taxes are again rising, and perhaps New Zealand is therefore reverting to 'type' they may reduce their saving activity. Do you think that voters currently believe that taxes are rising or falling? Does the behaviour of voters (increasing household debt, reduced saving) indicate that they believe taxes will rise further? We think in terms of market pricing when looking at future interest rates. Perhaps in a crude way the market appears to have factored in increasing taxes.

More is at the link below. You'll need a logon to view it, but its well worth having a sub to The Economist anyway.

Economist.com | Economics focus

How Much Is Enough?

A recent mail from Graeme Lindsay identified a particular US insurer as offering up to 30 times income personal life cover without financial underwriting. Here in NZ underwriters tend to raise eyebrows at about 15 to 25 times - but not much. Most requests for 30 times would be waived through if three dependant children were declared. However, it does raise an interesting point of comparison. In the US with interest rates at about 2% and with them here at 7% and climbing... what does this level of cover buy? Quite different amounts of ongoing income in the two places, of course.

Kiwi Bank Accounts Look Squishy

So, Kiwi bank lost 'only' $500,000. Perhaps it would look a little worse without the $38.2 million of agency services revenue that NZ Post handed to it (it was making the money before Kiwibank came along). If you haven't seen the reports as yet you should take a look at these.

Quite apart from the politics the smooth establishment of Kiwibank has appeared to be nothing short of miraculous. Even if this lot is absolutely true, that achievement remains. It's just that as taxpayers, we need to know what the score really is.

Several good posts on this exist on the web.

NBR's own Shoeshine has done a neat job of sorting this one out. Look here.

A freelance blogger of some repute, DPF has more analysis and links: here.

The headline is a bit out there, over here.