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News, Interest Rates, Orange, Weather, and Christmas

Christmas greetings to you all!

This week looks likely to be a curious amalgam of hectic 'finishing off' things while trying to cope with the fact half the people you need to do that a 'slowing down' or have outright already 'gone off'.

No News is Good News

In the run up to Christmas, there is traditionally no news. Yet pages in print, slots on TV, and websites need to be filled nevertheless! In the financial service world we need weightier reasons for ignoring our news than a mere celebration and holiday. We need gravitas. So we are all waiting for the outcome of the taskforce on adviser regulation, or waiting to see who will blink first in the home loan rate war (apparently its Westpac), or we are waiting to see how the economy fares in the first quarter...

To give you property investors something to think about. Check out this article for a bit of light reading.

Of course, being continuously self-interested, I keep searching the tea-leaves for hope that I may not have to buy Campbell 'The Mystery' B lunch at the restaurant of his choosing for picking that interest rates would rise by about another half a percent between now and June (it was back in October I made the bet). Attentive readers will know this was a hedge against the unecessary expenditure on a planned (by my wife) extension to the house. But one still does not like to lose a bet, whereas losing to one's wife is inevitable. The relevant comment on the economy and interest rates is here.

Orange to Launch Soon?

This article talks a lot about DSE and Money Managers; and their new venture Orange Insurance (we're pleased to have them as a client). www.stuff.co.nz reckons they will launch in January, under the wise stewardship of Kevin Brailey.  Consistent with our confidentiality commitments, we could not possibly comment.

Websites

Let David Farrar and Phil Macalister keep you entertained over Christmas. David has a great back-catalogue of columns to keep you going even if he takes the odd day off over the break.

The Weather

Stink! The parents of one of my staff members are on a house boat up near Whangaroa. Pity them folk, pity them...


Handel

Its not really my thing, but my father talked me in to it. On Tuesday night four of us went to see Handel's Messiah performed by the Auckland Choral. It was fantastic. I've heard bits of this from recordings, but I hadn't heard it live before... and witnessing a performance was, frankly, amazing. Enjoyment compounded by wonder as Fran pointed out that this music has been performed the same way for 250 years. I'm determined to go next year now.

Incidentally Auckland Choral are celebrating 150 years, which makes them a very old institution for New Zealand.


An Integrative Approach To Marketing

Starts with a question: "What do we want to achieve?" The answers to that question are usually slightly different depending on the kind of stake you have in the organisation. An example for our industry might be:

Shareholders: return of x%, revenue growth, growth in share, EVA growth etc, cash generation.

Employees: good working environment, new opportunities, growth = equals enhanced career prospects, etc.

Advisers: better product, genuine choices = genuine independence, more money, better support.

Clients: better product, better price, evergreen product, product that doesn’t get out of date, investment returns, claims paid.

Community: Positive externalities: financially sound people pay their bills, the elderly have reliable savings, the bereaved have financial resources. Sound companies with sound marketing.


FPIA Survey Draft

Keeping tabs on wht advisers are thinking is best done with the largest financial services survey, run by the FPIA, in conjunction with Chatswood. If you would like a look at the next proposed survey which will be running in the next couple of months then just drop me an email at russell.hutchinson@chatswood.co.nz - don't be shy, a look at the survey form draft won't cost you anything.


HOUSEHOLD WEALTH

www.goodreturns.co.nz leads with a piece on household wealth. This is fascinating - because in spite of large house price increases (which have applied to the 67% that own homes) household wealth has only just, on average, crept up - by about 2% - which is pitiful. Rising debt is given as a strong reason. People have taken up debt and bought things - put a new car on the house, traded up, leveraged.

Now we have an income squeeze. Interest rates are a factor - driivng up the servicing costs on higher debt levels - mentioned in the article (although I look set to lose my bet on a further rise). Another contribution is tax - the combined effects of increased taxes (central, local, income tax as inflation pushes people through higher brackets, increased other charges, excise - 30 increases in all) and low real income growth is affecting the picture. But it is masked by the overall increase in household wealth - for now.


The Mission is Commission

While the Government have been praising the Australian compliance regime, the principal targets of such a regime - the quality of advice on the one hand, and the extent to which that advice is driven by commission on the other - have been moving for some years now. I've written about research services and their role in advice-giving before. So lets talk commission!

Just what has been happening with commission? At Chatswood we maintain a watchful eye on this most watched of subjects. Its difficult to watch: there is what a company say it pays, and what is actually paid, and the difference between these can be large. There is also what a company pays and what an adviser feels about what is paid - fairly or not these things usually differ too. We try to model real world comparisons.

Usually this means working on the basis of comparing amounts paid on a given level of annual premium. This does not take into account differences in premium rates. We may rebuild our model over the coming months to work on the basis of cover bought to absorb this anomaly.

Another more difficult anomaly is allowing for the amount of commission lost through underwriting. This has certainly risen in recent times. Underwriting, which was certainly too lax a few years ago has toughened up substantially. One adviser I spoke to recently was 25% up on last year on submissions to underwriting, but on 5% up on issued business.

But despite all the difficulties, we do measure. We try to test out model with advisers. We ask advisers to try to replicate what they receive in our model as a great back-test from the market. So we are pretty happy with it.

One conclusion is inescapable. Commission levels have been falling for the last couple of years. The amounts involved are small, and are at the margin, but total commission has fallen. Soft commission arrangements are harder to find. Qualification criteria for trips and the like are toughening up. This is just the beginning. We are not the only ones watching commission levels.