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Consumer Article on Bonds

I have been critical of Consumer before, so I need to preface this with the following: I am a supporter of the mission of The Consumer's Institute and their magazine. I am also a subscriber. However, my time in the life industry, and the six years since as a consultant, has led me to view their reporting on financial matters variously with scepticism, concern, and sometimes even sympathy. Usually the investments stuff is superior to the insurance material. Regretably, with Susan Guthrie's recent article on bonds that is not the case. I cannot find it in an online public area. But I'll quote sections.

The problem is not that it is wrong. The article is quite correct, yet provides virtually no actionable advice to the consumer. It's like the man floating lost in a balloon a hundred feet above the ground - finally after crossing a desolate area he sees a person below and shouts to them "Where am I?" the person shouts back "About 40 feet above Smith's Farm". Correct, but useless.

An example from the article: "If you want to look at fixed interest investments as alternatives to bank deposits, you need to find out about the risks. It's a case of choosing the level of risk that you feel comfortable with." No useful information to tell you as a consumer how to do that.

The meaningful question is: what risk of losing your capital are you prepared to take over, say, 5 years? Under 1% - then you need A rated bonds... etc...

How about this: "Find out in writing where you would stand if things turned out badly." Useless. Neither the company issuing the bonds or any adviser is ever likely to answer this question with a response other than referring the investor to the risks section of the investment statement. That is usually so opaque that the client will be no better off. In practice the non-expert investor cannot reasonably assess the reasonableness of winding up arrangements.

But it gets worse: "Are their loans secured? Unsecured loans ... are more vulnerable and less valuable than first mortgages secured against property." Yeah, true, but if corporate bond traders often differ over whether a second mortgage secured by a residential property is riskier than, say, unsecured debt to a major corporate - what hope does the lay investor have?

Or what about: "You can ask for [the finance company's] lending practices to be spelt out to you." You CAN ask but, again, you will probably not get anything other than the investment statement, and if you did - what would you do with the lending manual (often an inch thick) and how would that help you?

The best advice to consumers to to tell them to go and look at bond ratings; look at the descriptions of the ratings - www.bondwatch.co.nz is an excellent example - and try to match your feel for risk with the categories. Some bond raters even include the five year or ten year historical rate of default by rating their ratings information. Perfect. Advise against investment in unrated bonds - or at least suggest that these are a small proportion of a portfolio. The two actually useful bits of info were advice to spread investments, and the web addresses of bond rating companies, but again with no information on how to actually use them.

Task Force Proposals Deferred

The news was perhaps greeted by some with relief (pop on over to www.goodreturns.co.nz for a look) but it is not good.

Regulation has not been taken off the table. Regulation of some sort remains on the agenda of Labour and National - I spoke to John Key before the Fundsource conference and his view was that something along the lines of the Australian model was a likely destination. Product providers like being able to offer products on both sides of the Tasman. At present while an Aussie planner can just get off the plane in NZ and start selling, the reverse is not true. So regulation uncertainty continues - increasing the discount for risk sought when buying financial advisory businesses.

Mass Affluent

This is a category the financial services industry has been tracking for a number of years now. Originally sophisticated money management was for the wealthy only - private banking typically had a floor of $1m in free investable assets. As this article demonstrates so well, two things have happened: incomes have risen, and prices have falllen. This has placed services which were once the preserve of the rich within the grasp of many more people - the mass affluent. Those services offer something new 'mass customisation' - technology permitting the equivalent of a bespoke service, customised not through the agency of your own 'money butler' but through sophisticated systems, many of which the client will maintain themselves. In financial services we've seen this in the development of wraps, mini-wraps, online share trading, super-choice (in Australia) and the list will rise. Who will be the first to offer risk management products in the same way?


I haven't posted on current books for a little while. "Metro Maps of the World" is a super book, especially if you are interesting communication art (as any good marketing person should be). Making metro maps accurate and easily readable is a major challenge. Which is why most metros, including the London Underground, opt for maps that make easy reading rather than being strictly accurate.

Also enjoyed "Dry" by Augusten Burroughs. A great tale about an ad exec confronted with the reality that his life is really completely out of control.

Thoughts on Thrift and Savings

Over in the UK the tax squeezed and, frankly, 'desire' squeezed middle classes are apparently rediscovering thrift. Car boot sales are apparently luring the "Audi" owning classes as they rebel against high taxes and 'rip-off' Britain where things are so much more expensive than they are overseas. Recently I spent time with a stockbroker who told me that "when you see judges buying tennis balls at The Warehouse" you know something has changed. This morning Leighton Smith was talking about a couple struggling on a family income of $65,000 a year. The most powerful statement in the show was, to the effect that: if one person is trying to support another adult and two children - why should they have to pay so much tax to support other people first?

What does all this mean? An imminent lift in our savings rate? More people queueing up to buy financial products with a medium to long-term view. Probably not. Note that in all these examples it is not the balance between consumption and saving which is being challenged - it is either the resources available for consumption (income levels and tax impost) or the effectiveness and value received for money spent (can I buy second hand, can I buy cheaper).

Heaven help us if the mass affluent do discover thrift - real thrift - that of saving more, or saving before purchasing. Because then we will need to rediscover Keynes "The Paradox of Thrift" and can expect years of low growth rates as a consequence. Besides - according to some sources we've decided to contract out saving as well, this time to companies. The Economist recently reported how corporate saving rates are very high at present, partly explaining M&A activity and special dividends. This is no problem at all - unless you don't own any shares. Which brings us back to the problem of saving.

The challenge for us in financial services as ever is how to get the young saving and investing, and, these days, the old - spending.

Hard but Fair

** Article:  Twelve Outrageous Secrets of Success Your Guru Never Told
You, But Your Mentor Will!! - By Claude Diamond **

Don't read this if you're looking for touchy-feely, warm and fuzzy, hug a
tree, you and me, personal achievement psycho banter. There is plenty of
that nauseous stuff around to get us through the 21st century. (If you
don't believe me go to any garage sale/flea market in Southern California
and check out all the leftover personal motivation tapes for sale!) I want
to share with you some of the practical/real world advice that has enabled
a kid who grew up with his family in a deli/grocery store in NYC to
achieve the life he wanted and yes, that includes fïnancial frëedom,
quality of life, health of body, spirit of mind and just plain enjoying
each day of life. Some of the items on my list you will agree with and
others might outrage you. I can only tell you that they worked for me and
they just might work for you. OK, here we go folks.


Secret #1: If your Life Stinks, it's your fault. (Hey, I warned you!)
Success begins when you take full, unmitigated, unequivocal RESPONSIBILITY
for your life. You stop blaming lawyers (well, maybe lawyers),
politicians, luck, the weather, etc. How many times do we hear from others
how it's always someone else's fault? Your Success ALWAYS begins and ends
with you.

Sëcret #2: Throw away your Useless 40 Pound Success Planner. These things
are the most useless, supposedly time saving devices ever created. They
are designed to save you time, but all you do is waste it by filling out
the silly thing. Heck, you even need a three day seminar to learn how to
use them. Try using a simple composition book (yep, the black & white one
from grammar school) or a basic weekly calendar book. I use one and my
appointments and goals are always in front of me. It works great! It's
time to simplify.

Secret #3: Whoever said 'Money isn't Everything' never had any. Yes, Yes I
know all about good health, etc. What I mean is how can you be a good
Husband or Wïfe, Mom or Dad, a role model to your kids, an upstanding
person of character, a contributing member of your community, a person of
faith when you are up all night sweating about paying your bills?

Secret #4: TURN OFF THE TELEVISION! Television is a narcotic for the
masses. The average household has a television on for 8 hours plus per
day. Watching Gilligan and his buddies on that insipid island won't mäke
you rïch, but what will get you to wealth is making more time for the
goals you have set for yourself, for research, learning and implementing
ideas. One of the biggest excuses I hear when Mentoring others is that
there is no time for anything. Hogwash. There is all the time you need to
find your greatness if you place a value on it.

Secret #5: Walking on Hot coals will only give you a hot foot! There are
more silly ways for you to spend monëy in search of success than ever
before. I can't tell you how many folks I have Success Mentored who have
literally spent tens of thousands on gimmicks. You don't need to find your
center, eat tofu or wear a crystal from the planet Zongo. You just need to
learn simple principles of common sense and apply them.

Secret #6: If you hang around or take advice from losers you will become
one, too! You are a product of your environment. Oh boy, this is a toughy,
but let's go for it. I discovered a long time ago that when I hung around
with losers I became a loser, too. How many times do you find yourself
wanting to hang out with folks who have no desire for greatness, just
recreation, gripping sessions, whining and the like. The good news is that
if you surround yourself with Wïnners you can become one, too. You must
create an environment of Success. It's that simple.

Secret #7: You can't petition the Lord (for wealth) with Prayer. (I heard
this on some rock album in the 60's). NO, I am not trying to proselytize,
but I figure that praying to the Almighty to wïn the lottery while waiting
in line at the 7-11 quaffing down your mango SlurpyT isn't what
spirituality is all about. Save your talks with the big guy for stuff
that's really important.

Secret #8: You have to be your own Cheerleader. Now don't go into the
attic and get your daughter's high school pom poms out. What I mean herë
is you have to be in your own corner. Success is about having self esteem,
believing in yourself, having a little respect for YOU. If this sounds
self centered then you're correct. It's all about you, your confidence,
your attitude when you really get to the bottom of it.

Secret #9: Character does Matter. No matter what you see and hear from our
politicians it really is smart to do the right thing at the right time. I
know this sounds corny, but when you do the right thing at the right time
you feel good about yourself, you nevër have to look over your shoulder,
you nevër have to remember a lie you told. Ask yourself this question. If
you were walking down the street with your child and you found a wallet
with the owner's ID intact would you have the character to return it or
would you hope your child forgets about it and you pocket the loot? How
can you expect anything more of your kid (or anyone else) when you, as
their role model, can't lead by example?

Secret #10: Find A Mentor. Mentor defined: A wise and trusted teacher. I
know of no other technique of Success that has given me greater results
faster than having a One-On-One relationship with a wïnner. The positive
influence, guidance, teaching, motivation and laser like focus is what
Success is made of. This technique goes all the way back to Homer's
ancient Greece and has stood the test of time. Seminars, books and tapes
are fine starting points, but there is no substitute for an ongoing
supportive, role model relationship. Decide what it is you would like to
do, learn and accomplish with your life, then find someone who is already
doing it Successfully to help you to discover your greatness. Don't start
from scratch or reinvent the wheel when you can have the life you want
beginning today with the right Mentor.

Secret #11: Become a Coach or Mentor. Enabling others to stay focused and
motivated is such a great feeling! There is no greater joy than sharing in
the success of another person who you played a part in helping.
Specialized niche Coaching & Mentoring is becoming the höme busïness
opportunïty of the 21st century. Find a Mentor and Become a Coach or
Mentor and make a difference in your life and in that of another person.

Secret #12: You have everything you need right now to Succeed. You are
endowed with the same seeds of greatness as anyone you have ever envied or
admired. It's just a question of finding your passion, discovering your
greatness and pursuing it with a disciplined HUNGER. So many people accept
mediocrity as their standard when they are capable of so much more. Don't
settle for less; excel and find the life you deserve, your greatness
within and the life you are destined for. You have everything you need
right nöw! So just go for it!

About the Submitter
Claude W. Diamond is a Success Mentor and Coach . He is the author of
several tape sets including creative real estate, säles, consulting,
success secrets and more. He is the publisher of Claude's Success Stories©
a frëe newsletter which you can have by going to