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Project Team - Behaviour Affecting Financial Wellbeing Study

I have been toying with an idea for a research project and am seeking interested parties to form a consortium to collaborate on a project. It may be suitable for economics students. It may be of interest to serious financial planners, marketers, or sales directors. The focus would be a quantitative study of behaviour and choices affecting financial wellbeing. I suspect it will be a large study, with a variety of components, and will take quite a bit of work to run - hence the need for a team - and we will probably end up pulling in more eager hands from academic circles (I have approached UNITEC and Henley both institutions at which I have studied). Involvement likely to be a handful of hours a month on average over a number of years - but occasionally peaking up a bit.

Drop me a note if you think you might be interested, or just have some ideas, and let me know why.


Tax burden on individuals

A comprehensive review by the OECD finds that NZ's individual tax wedge is high. Individuals contribute the second highest proportion to taxes after only Denmark. Although looking at just income and social security tax wedge as a proportion of income our ranking is actually very low. The key, as the report suggests, is:

"At the same time, fairness and simplicity have become the byword of reformers. Fairness requires that taxpayers in similar circumstances pay similar amounts of tax and that the tax burden is appropriately shared. Simplicity requires that paying your taxes becomes as painless as possible and that the costs of collecting taxes are kept at a minimum.Almost all of these tax reforms reduced the tax rates and broadened the tax base."

The problem with the tax debate in NZ is that it has become toxic. One side (led by Labour) appears to only increase taxes and favours benefit targeting rather than general tax reform. Even with a very, very large surplus changes to the system have been either revenue neutral or positive. For tactical reasons each change is therefore fought with the intention of killing it - in order to prevent a further increase in tax, by the other side - led by National.

A capital gains tax, for example would make some sense, helping to rectify the silly advantage that property has over other assets. The only sensible way it could  be introduced without a revolt is to reduce income tax rates at the same time.

The other great example for our industry is savings. If you don't want to stoke up inflation and consumption with an income tax cut, then incentivise savings. Simple.

But Labour does not seem keen on leading that kind of tax reform. The strategy now, rather than calling for specific income tax cuts, should be for a debate about tax reform targeting key questions such as:

"what surplus/deficit/balance should be run? - and over what timeframe?"
"where should tax come from?"
"how can we make the system simpler and fairer?"

Time to regulate commissions?

Naomi Ballantyne, CEO at ING life has raised the idea of regulating commissions according to this story over at goodreturns.

I am particularly grateful that the article reports Naomi as saying that it's just an idea, and even 'I might be wrong about it' because, while I hesitate to disagree with my friend and former colleague, the simple fact is, I do.

If there is a market problem its the belief that when you go to a broker you get 'unbiased' advice when plainly, the commission can have an effect.

They can come up with all the fancy educational requirements in the world - in fact the added costs these create will help to keep commission levels high - but a cheaper, simpler, and more effective way to make it clear to consumers just which side the adviser's bread is buttered is to require one of the following:

1) Full clear disclosure of the amount of and all forms of reward

or alternatively,

2) For the adviser to unambiguously state that he or she works for the company, not the client.

One or the other (because you don't need both, and we like efficiency).


Three board positions are up for election and there is a healthy swag of candidates:

Geoff Bawden - Moneyworkz Ltd - Standard Individual Broker Member

Brian Greer - Kiwi Mortgage Market Ltd - Associate Member

James McAllister - Mike Pero Mortgages - Standard Individual Broker Member

Karen Mooney - Mortgage Link - Standard Individual Broker Member

Craig Seton - Mortgage Link - Standard Individual Broker member

Bill Slater - Gateway Finance Brokers Ltd – Standard Individual Broker member

Julie Stevens - Plan NZ - Associate Member

Tom Robert - ASB Bank - Affiliate Member

Malcolm Aston - Sovereign Home Loans - Affiliate Member

I do not know all these people. I have a preference for broker members, but of course the skills offered by corporate members can be a very useful complement, and a range of people is ideal on a board to prevent 'group think'. In that regard, I know Tom Roberts to be a straight shooter and has a good understanding of the industry.

Compliance Reviews

I have often been asked to comment on compliance issues arising from proposed or current activities of customers in the financial services industry. In many cases, I believe that an independent compliance review is recommended to help identify and manage both operational and compliance risks.

My own expertise is not in the compliance area - as a marketer some of my past colleagues would give me some good-natured ribbing about promoting compliance. Yet best practice in compliance is also, usually, best practice in marketing. So while I do not handle compliance reviews directly - at Chatswood we have associates in this field and will work with you to deliver the right form of compliance project.

This is an example of a response from a client to the review process:

“We didn’t know the extent of the resource and knowledge available through our employees and advisers until you interviewed them and recorded the results. You accessed that for us.”

Other benefits of an independent compliance review are :

  • The requirements of all      stakeholders in the business can be considered with no vested interest      from the consultant in the outcome
  • Neutral approach with no      preconceived ideas or “baggage”
  • The consultant is focused just on      the review objectives and has the time to “listen.” Management employees      often don’t have time.
  • Employees, agents or      representatives talk more freely about issues to an outside consultant      endorsed by management than to management
  • Management don’t necessarily have      the breadth or depth of knowledge or skill to complete the review

The key focus of the review is to identify those risks that, if they occur, will result in an unacceptable outcome and to then select and implement solutions to reduce such risks to an acceptable level.

Identification of compliance risk is focused on possible breaches of law, statutory regulation, local body regulation, profession or industry requirements (mandatory or voluntary), failure to follow internal policies and procedures, or failure to meet the expectations of stakeholders.

These risks can arise from customers, suppliers, staff, agents, representatives, regulators, non-associated persons or uncontrollable events. Types of risk assessed may include fraud, theft, misrepresentation, error, lack of care, lack or knowledge or possible disasters.

These risks can result in financial loss, regulatory penalties, reputation damage, loss of customers or revenue, loss of staff and, worst case, loss of the business (e.g. Arthur Anderson, Access Brokerage)

A compliance review will:

  • Identify the source, size and type of risks
  • Determine an acceptable level of risk
  • Set priorities to reduce unacceptable risks
  • Establish a plan to address the risks
  • Manage implementation of the planned solutions to reduce risk
  • Introduce ongoing monitoring and reporting of risks
  • Develop procedures to manage risk events when they occur

Compliance reviews can be large or small- there is no one size fits all approach. We would work with you to establish the scope of your project.

Every company and distribution network has compliance risks. To explore a route for managing them effectively, please contact me, russell.hutchinson@chatswood.co.nz

The Undercover Economist

Regular readers will know me as a keen reader in this field. Tim Harford's book 'The Undercover Economist' got read between purchase in the airport on Thursday and Saturday evening - and it was very rewarding. Harford writes with a simplicity and clarity unusual in the subject.

Two areas dear to our hearts are mentioned directly. The first is the problem of anti-selection in insurance. The second was an historical artifact - the embarrassing spectrum auctions in NZ based on a Vickrey system which saw the top price bidder win, but pay the amount bid by the second place bidder.

Harford has a website. He is also a columnist at the FT - and thos columns get re-published on his site here. I thoroughly recommend reading them.