Rationalisation in the Life & Pensions Industry in Ireland

Last week Zurich Life announced (quietly) that it plans to close the Cork and Galway branches and is looking for about 70 voluntary redundancies. The company cites the continuous decline in the health of the Life & Pensions industry, since it peaked in 2007.

What’s surprising, is that it has taken 5 years to come to this conclusion and that there have not been similar occurrences with some of the other players in the market.

You see, I’d consider Zurich Life to be one of the better players in terms i) the product range they have to offer to the end consumer ii) their service and iii) a unique ability to listen to what type of product I want and try to deliver it.

There are two existing players that have basically single (okay) product offerings and I don’t know if their parents are going to plough money into the small Irish market at this time. Why would they? It’s a mess.

There are two others that I would find it very difficult to place business with based on past experience with service and crappy products. Standard Life wouldn’t be one of these.

The biggest operator is owned by the State and has just swallowed up Quinn Life. There’s a few boutique players flogging deposit based tracker bonds to death. Bank Of Ireland are ‘trying’ to sell New Ireland.

The only speculative conclusion that I can come to is that: now that Zurich Life have made a move some of the others will follow by letting folk go to reduce costs in an attempt to enhance profitability. Life & Pension companies in Ireland don’t like to be ‘first’ with crappy news so I’d expect a few of the others to come forward any day now and tell us how terrible things actually are in the industry.

The Downward Spiral Continues

There isn’t a week that goes by where an Irish based Life & Pension company complains about the perilous state of their market. They are all in a ‘race to the bottom’ as they struggle with profitability and retention of business.

The Life & Pension market has nosedived about 60% since its peak in 2007. There is no way that anything like this number of regulated entities have exited the market since then. (I’m awaiting a reply from the regulator on the percentage increase/decrease since 2007.) So, where is their income coming from if there’s less ‘new’ business to go around? How can they all survive a decrease like 60%?

The dogs in the street know that there is a problem but no one seems to be doing anything about it, except complain. The only conclusion that I can come to is that the Life & Pension companies don’t think it’s their responsibility to change anything. If fact, there may be a mindset within the industry that is waiting for the regulator to ‘do something’.

The thing is, it’s not the regulator’s problem. The Life & Pension companies have created the problem themselves and it would not make sense for the regulator to intervene as, on the face of it, the consumer is benefiting from reductions in life insurance rates and enhanced allocation rates for pension/investment business.

As far as I am aware, Life & Pension companies have to submit annual figures on how many policies 'replace an existing contract, in whole or part', so the regulator should know what they’re looking at.

It may be that the Life & Pension companies want the regulator to say ‘your business model is doomed and you have to change it’. Of course, this would suit the companies as they could then ‘blame’ the regulator for insisting on change and save face with their broker/advisor market.

In the meantime, those who rewrite life insurance every few years will be rubbing their hands with glee at the prospect of rate changes (again) in December due to new gender equality legislation. ‘New’ policies means ‘new’ income. The downward spiral continues.

Victims, Spectacle Makers or Whiners in the Workplace

I like this analogy in ‘What They Teach You at Harvard Business School’ on how important it is for business owners to identify “victims”/ “whiners” / “spectacle makers” in the workplace, before the pollute or contaminate your business and turn customers away.

“..if I had my favourite bowl of ice cream over here and a bowl of shit over here, if I took one speck of shit and put it in the ice cream, would you eat the ice cream?”

Harvard Business School & The (Irish) Department of Social Protection

I recently read how students that were accepted to Harvard Business School emptied out their bank accounts, by either transferring the money to their parents or by buying luxury cars. They legitimately did so to qualify for financial aid.

I then got to thinking about a proposal by the Irish Department of Social Protection that would require motor tax applicants (car buyers) to provide their PPS number so that they could cross-reference this number against those that are in receipt of social welfare payments.

Is there a major scam going on whereby those applying for State benefits empty out savings accounts or transfer assets to family members in order to qualify for State financial assistance here in Ireland? Could it explain some of the upsurge in new car registrations?

Think about it. You have €30,000 in savings but you wont ‘qualify’ for full/partial State Benefits because you hold this asset. If you blow it on a luxury car (not deemed an asset) you could get the State to fund, or partly fund, your penchant for a nice car.

How sweet is that? Your taxes paying for your neighbours new car.

Government 'Policy' in Savings/Investment Market

It would appear, to me, that the Irish Government is systematically distorting the savings market. It seems to be a case of ‘We’ve blown ours and now, we need yours’. They are running out of road in terms of the options they have, to deal with the Exchequer Deficit ie raise taxes, cut spending, growth, default/restructure and now enforced buying of Government Debt.

You may have been prudent enough to save for your family’s future but the last two budgets have provided us with an insight into how desperate the Government have become in trying to relieve you of your hard saved cash.

It’s being dressed up as a sense of ‘civic duty’ so that you don’t feel too bad about helping them out of a sticky situation.

Increases in DIRT & Exit Tax, introduction of a 1% Tax on Unit Linked Savings/Investments, Inflated Deposit Rates from Government controlled banks and building societies, Solidarity Bond MK 1 (with MK 2 on the way), and Sovereign Annuities.

These are all designed to force companies and individuals to buy Government Debt via savings/investment and pension products. It seems that the Government savings policy is that you should bet the house on Ireland Inc., with a total disregard for any sort of diversification.

The Solidarity Bond is being flogged on the basis that your investment will help with “stimulating economic recovery and assisting in the maintenance and creation of employment”. Of course there is no disclosure requirement, or annual update, on how the punters money is being spent. How many jobs were created from the €350m invested in 2010?

The Government also tell us, in relation to Sovereign Annuities, that “This type of investment in ourselves is vital to our national recovery” Not a ‘Wealth Warning’ in sight, it’s all good stuff because “...there is absolutely no risk of Ireland defaulting on its sovereign debt”.

Perhaps, if the Solidarity Bond and Sovereign Annuity products were regulated by the Central Bank, the Government would not be so bullish in their comments regarding security/guarantees and how fit these products are for purpose and how they distort competition.

Fixing the "Broken" Business Model

It would appear that the penny is finally beginning to drop with the management of Life Insurance Companies, that all is not well with the way they sell their products. In the past 10 days we have seen Irish Life attempt to undo the unprofitable practice of changing Term Insurance product providers every so often, and the Sales & Marketing Director of Friends First calling for reform of the ‘sales model’, under Government supervision.

To be honest, the Irish Life action does not go far enough and the comments from Friends First smack of desperation. Why would a Life Insurer need Government input on changing the way it sells its products? If the sales model is messed up, surely it is up to the product providers to reform the model that they are complicit in facilitating; unless, of course, there is a fear of offending a certain distribution channel and they want to be able to put the onus of change on Government.

If Life & Pension Companies are serious about reforming their industry then they need to consider the following :

● The interest of the consumer should be put to the top of their agenda
● Accept that Financial Advisors should work in the interest of their clients, not product providers
● Different pricing/remuneration for different distribution channels does not add up
● Products with 20 to 30 different commission options are not designed with the end consumer in mind
● Simplifying product charging structures so that there are [at most] two types of charges on a product
● Charging 1%pa to ‘manage’ a Cash/Deposit Fund is a rip-off
● Create an external fund, with input from the NCA and Financial Regulator, to pay for the Education of consumers on financial products/issues so that the public perception of bad value is negated
● Stop telling the market that Term Insurance is not profitable and then keep reducing your rates
● If you continue to deny reform you are leaving the door open for niche players to chip away at your book of business.There’s obviously enough 'fat' on the product for others to offer same products (more efficiently) and profitably
● Measuring the company’s success, and rewarding management and sales staff, by dubious ‘new’ business figures is all going to end in tears
● The notion that chasing the large corporate broker to fulfill your hunger for‘new’ business is folly. Treat every intermediary the same ie no special treatment.
● Devising a business plan that extends beyond 1 year
● Be more flexible in their approach to intermediaries who want to offer low-cost versions of their products and stop hiding behind the 'fear of offending your supporting brokers' line. If I want to sell it at a lower cost, by reducing my margin, so bloody what?
● Ban rebates on Term Insurance as it does nothing for retention of business. Instead,allow the intermediary to offset saving so that cost of product is reduced to consumer
● You would love for someone else to ‘impose’ fee based advice only but it’s not the solution to your woes
● Have a serious look at service issues to lower your costs as the amount of duplication is remarkable.

These issues should have been attended to before now. It is ironic that Life & Pension Companies are now ‘forcing’ the issue because it’s not working out the way they planned it. If I were a shareholder of any of these companies I would be very disappointed that they have let it go this far.

AIB Bank Charges

I received two letters from AIB on the 18th of March (both dated 30th April) informing me that the 'agreed fee arrangement' on the accounts expired on the 28th May. They went on to inform me that their 'Standard Rate of Fees and Charges' would apply from the 28th of May. A copy of their 'Business Fees and Charges' booklet was supposed to be enclosed, it wasn't.

I rang the local branch on the 18th to speak with my 'Relationship Manager' and got to talk with the person that had signed the letter on their behalf. I asked for a copy of the original agreed fee arrangement and the charges booklet. There was no sign of these a week later, so I called again. The guy that was supposed to send out the information would ring me back 'in a few minutes' - he didn't. I got to speak with the 'Relationship Manager' on the 27th, after another call to the branch. He was not aware of the previous calls.

To cut a long story short, I'm none too happy about the bank increasing the charges on my accounts. Under the existing agreement - I managed to find my copy - I pay 25% of the standard charges and, to me, this represents a fair arrangement as I'm not in and out of the branch every day. In fact, I have been in it just 7 times this year.

What's really bugging me about this effort by the bank to squeeze account holders for the errors of the banks ways, is that the letters I received were written without even bothering to look at the original agreement. They have assumed that I do not have a copy and are reluctant to furnish me with theirs.

The old agreement, dating back to 2006 and signed by the same 'Relationship Manager', states that it 'is for a specific period of time' but the expiry date is down as 'Ongoing'. It also states that I will be 'advised by letter of the expiry of the agreement one month prior to the expiry date'.

So, it seem that the expiry date of the agreement has been made up by the bank. It is also underhand to date a letter that implies that it was issued a month before a fictitious expiry date when it received by me 10 days before said expiry date.

What would you do?

Surveys - What's the point?

I'm sick to death of being asked the same questions, year in year out, by the same companies. The main thrust of these surveys is to establish who 'I' consider to be the 'best' Life & Pension product provider; under a myriad of headings.

I have come to the conclusion that their sole purpose is to satisfy the egos of senior management, because the outcomes would appear to be ignored. Perhaps there is some 'bonus' payment for moving up the industry 'ranking' or maybe they want me to adapt to their corporate belief system? Then, and only then, will they "value my opinion".

You don't need an annual survey to find out what companies are in favour, it is reflected in the volumes of business they are transacting. The dogs in the street know why they are successful.

Two years ago I completed a survey for a company and raised a servicing issue. The following year I refused to complete it, as the original issue had not been resolved. Rather than implement any change to resolve the matter raised in the survey, the company choose to ignore my protest. So, what's the point?

I presume that there is an annual budget for these surveys that 'must' be spent. The inaction on the results just shows that it is a waste of marketing money. Rather than ask 'the market' what you are doing wrong, why not just ask your customer service/account managers? They are the ones that are getting the abuse on a daily basis and are closest to the coal face.

If you are in Business and haven't read this book: You probably should.

The Innovator's Dilemma - Clayton M. Christensen


I had to share this with you. Rarely do I get excited about a book: but when one comes to your attention that is a reflection of your own thoughts and business principles, you tend to enjoy it all the more. This one fits nicely for me, as the position it adopts has a strong relevance to part of my business model.

As I read through the opening chapter, where there were strong references to the disc drive industry, I though I was going to be bored to death. What had not hit me at that stage was that, if I substituted the words 'product or service' for 'technology', the underlying message of the book would blossom.

The following are the areas of the book that I thought were relevant to the Industry that I operate in :

* Your customers/distributors may not be the best market indicators if the whole structure of the market changes.
* You can do everything right in your business and still fail, because of changes in 'product/service' and market structure.
* If you focus solely on profitable products that are currently in high demand, someone else can come into your market, from below, and bite you on the backside.
* No demand at the moment does not mean that this will always be the case.
* It is not a management priority to allocate funding to low margin products that are not in demand, until the demand arrives. By then, the company are left sitting on their hands.
* Product providers leave the door of opportunity open for more flexible low-cost competitors that eat into your market share.
* It's a marketing challenge to create a market for a product that distributors will not sell because their customers are not demanding that particular version of a product: Yet.
* Product providers can't get their heads around the notion that just because there is no hard data available to work with, for research purposes, does not mean that there will not be a demand for an innovative service or product at a future date.
* Sometimes it is important not to listen to distributors (or customers)
* Some business models evolve so slowly that product producers and distributors are not interested until the demand takes off. By then they are left with a bucket of crap and can take a few years to catch up: If they are lucky.
* Companies should chase small markets [create them even] when everyone else is focused on the gravy train


This is just a summary of what I got from the content. If there are any Life & Pension Company managers reading this, all is not lost. The author provides you with a set of rules that you should adopt so that you are not the one that ends up with egg (or something worse) on your face. It's time to make up your mind whether you are an Innovator or just an Imitator.

The F.U. File

I keep a file in my office, simply titled F.U. It's littered with F**k Ups by Life and Pension Companies over the past 3 years. F.U's that cost my business money. There are also letters from these companies offering 'sincere' apologies for their incompetence and assuring me that the 'problems' have been rectified. To be honest; these letters are as empty as the heads that wrote them.

It was my hope that 2010 would bring some change to the way Life & Pension companies do business. Alas, it has begun the way that 2009 ended; same story, different year. I don't think that I would have higher expectations of customer service than other Financial Advisors. From talking with a few others before Christmas, it would appear that they are also experiencing servicing difficulties with some of the players in the market.

It really is baffling that the very companies that are losing business and market share cannot up their game to win new business by providing a superior service to customers. It seems that 'buying' business is where it's at in management circles but this method of business growth is not good news for the end consumer.

What I would like to ask the readers of this Blog is this : 'Do you think that I should post i) details of servicing issues that I am having with companies here ii) the names of the companies involved and iii) the name/s of the individual/s responsible for the F**k Ups?'

In your opinion would it hinder or help with customer service?

Have Bank Mangagers merely become 'fluffers' for their Financial Planning Consultants?

A client of mine lodged a six figure sum in her AIB current account just before Christmas. Within 48 hours the bank manager was on to her acknowledging the lodgement and asking if she had any 'plans' for the money. The client is savvy enough to recognise what she would consider to be a genuine interest in her finances and what was a sales pitch. The client told the manager that she had 'plans' for the money and the telephone conversation ended. The client subsequently received a letter from the bank manager listing '..some Deposit Options for consideration.'

As I understand it, AIB are under pressure to take in as much deposit money as possible as it is their principal source of funding at the moment. The bank says that they are continuing to "target a progressive reduction in their loan to deposit ratios" and that they are selling some assets as part of an ongoing strategy to successfully unlock "shareholder equity for its core business activities". Last time I checked, 'core activities' meant 'Deposit Taking' and 'Lending' not 'Holistic' Financial Planning.

I'm finding it difficult to reconcile what they are saying and what they are doing. If they are so anxious to take money in via Deposits, why are they continuing to use their deposit base as a gravy train for the investment products that they offer through AVIVA?

The letter that I mentioned above, titled "Deposit Options", also contained the following paragraph : "Ideally we recommend you to meet with Financial Planning Consultant who will cover off all the options available including some long term funds with potential to outperform Deposits."

Seriously; have the Bank Managers merely become 'fluffers' for their Financial Planning Consultants?

The use of the words "all the options available" suggests that the Financial Planning Consultant might recommend a Deposit Account, perhaps with another institution, that is offering a higher rate of interest. It also implies that the Consultant may recommend an investment product from all the options available on the market. Nothing could be further from the truth. The Consultant would either recommend an AIB Deposit Account, an AVIVA Investment Product or a combination of both. They don't recommend the more competitive products available elsewhere on the market.

I think that it's about time that someone took them to task on the way that they present themselves to their customers. It is about time that they were banned from the 'sharing' of Deposit Account holder information with their Investment Salesmen/women. It is also a pity that the Department of Finance did not make some reference to the movement of Deposits with Banks to Investments with linked companies, when they decided to Recapitalise the Banks last February.

I Don't Follow You (on Twitter because....)

Your Name and Location are not provided

You are too lazy to include a unique Avatar (unless you're a client)

Your Bio tells me nothing about you

Your Following and Followers are not balanced (unless you're really important or interesting to me)

You Tweet too much (10 per day is enough, ignoring replies and RT's)

You include your website in every Tweet

Your Tweets are 'Protected'

You Tweet the same Tweet multiple times

You #FF me but don't Follow me yourself

You are a Spammer

Your Tweets are not interesting to me

Your Tweets are aggressive

Your Tweets refer to 'Making Money with Twitter'

Your Tweets are similar to those provided by someone else that I Follow

You expect me to read your Tweets but don't read mine

Your Tweets are not diverse

You make no attempt to engage with your Followers

You are 'into' Direct Marketing (big time!)

You don't Follow Back after 2/3 weeks

You ask a question but don't acknowledge an answer

I think that 500 (maybe less) 'Friends' is enough for anyone to cope with

Of course there are exceptions, but not that many. If you have any to add to the list, please feel free to do so.

An Industry on a 'Collision Course' with itself

In July 2008 I wrote an 'Industry Overview' blog post in which I stated that the Life & Pension Companies in Ireland needed to turn their business model on its head to ensure their future viability. So what has changed in the last 16 months that has given me hope for optimism?

The short answer is: nothing!!

It would appear that the management of these financial institution are running around like headless chickens as they struggle to cope with the reductions in new business and the exodus of existing business.

The main focus of their current business efforts is in 'buying' business. This is predominately directed at the larger corporate broker sector so the 'small' guys, like me, have become surplus to requirements as far as they are concerned. The management line is all about 'developing partnerships' with brokers but they fail to mention that it only applies to the 'big' guys. Needless to say, I have no time for managers that talk-the-talk but don't walk-the-walk.

What I would really like to see happen with these companies is that they seriously look at the following issues :

i) Service - The general level of service to customers is atrocious. Service cannot be defined as processing 'new' business effectively. You have to start looking after existing customers. Customers should be for 'Life not just for Christmas'.

ii) Factory Gate Pricing - Companies have to introduce this immediately. The current model based on full allocation with exit penalties is dead, and you know it.

iii) Simplify Products - There should be a maximum of only two types of charges that can apply to a product.

iv) Embrace Technology - All companies should give their clients full access to their products online. They should also embrace Social Media. There is only one life & pension office on Twitter and the last time they tweeted was 13th August.

v) Acorns - The future viability of your business does not revolve around 'High Net Worth' individuals. It rests with the the folks that want to start something 'small' and build it up in the future.

vi) Moral - You've got to look at boosting the moral of your staff. Your management are severely damaging your employees motivation.

If you continue to do nothing; you will win the race to the bottom of the Life Insurance & Pension market.

Inglorious Banksters

It never ceases to amaze me why investors continue to buy the shares of Irish Banks, when I stop to consider the prolonged list of (not so kosher) activities that they have had a hand or part in over the last 20 odd years.

In my eyes, the whole 'Institution' of Banking is supposed to be based on Trust, Honesty, Integrity and a bunch of other characteristics that typify good moral fibre.

Pause for a moment to consider the following Banking 'issues' :

Bogus Non-Resident Accounts, Overcharging (everything from foreign exchange to mortgages), Rogue Trading, Tax Evasion, Misselling of financial products to elderly, 'Exceptional Support' of another Bank, 100% Mortgages, Concealment of Personal Loans, Failure to ensure the accuracy of Regulatory Reports and, of course, the 'big' one that has given rise to NAMA.

I am sure there is probably a bunch of other issues that I may have failed to include, but investors continue to buy shares in these companies even though they are aware of these matters of contention.

I do business with companies and individuals because I trust them.

Why would I buy shares in these Banks? Or, why would I hold on to the shares if I was holding them?

Competitive Business Environment

Forgive my ignorance of economics, but I just don't understand how the current reform of taxation/spending is going to get us out of predicament that we are in.

Much has been written about the economic crisis in Finland in the 1990's and how this compares with what we are going through. Okay; the stock market and property market crashed, with drops of approximately 70% and 50% respectively, but they had their own currency at that time and had the 'luxury' of devaluing it to assist with a recovery.

As a small business owner I am acutely aware of the need to be competitive. The current crisis is having the effect of weeding out uncompetitive businesses but is also pushing some viable future businesses over the edge. There are internal costs that I can control, but the majority of the larger costs are outside my control. It's basically down to survival of the fittest at the moment, if you can get through this period unscathed then you will come out the other end in a far stronger position.

The private sector is being reformed by market force and the future is bright for businesses that can develop by gradual growth. A sustainable business will be possible, but the worry is in controlling those external costs. More worrying still, is the apparent irresponsible nature of the political establishment in managing these costs.

There is little point in having an environment where competitive and sustainable businesses can thrive, if the rewards of their labour are swallowed up in carrying the burden of an uncompetitive public sector. Both public and private sectors have to work in unison and we can't have a competitive 'one', without a competitive 'other' . It is about time that employee representatives in both sectors realised this. I would consider Finland to be a competitive and fair economy. They have made it so, without a minimum wage agreement.

In the short-term, consumers will benefit from the knock on effect of the surviving competitive businesses. Incentives have to be given to entrepreneurs and possibly investors, in creating and supporting businesses that actually 'make' something. Importing 'services' businesses that can be easily relocated to up-and-coming competitively priced countries is a stop-gap measure in a country's development.

Until such time as the hard economic decisions are made on whether we want the country as a whole to be competitive, not just sections of it, the problem will not go away. Or rather, it may go for a while but it will resurface again and again and again. I am sure that, given the choice between sinking and swimming, many more business owners would prefer to try rising above the surface without an anchor tied to their leg.

'Sitting in a well, looking at the sky'

The title of of this post refers to a Chinese Proverb, which basically means that you need to get out of the well to see the big 'picture'.The reason that this comes to mind is in the decision by George Lee to stand in the Dublin South by-election.

To me, the political party that he runs for is irrelevant as long as he does not get swamped by the status quo . What is important, is that he would have the ability to see the big 'macro' picture, and this would be very refreshing indeed. We need to take a step back from where we're at and change way things are done in the country. Very few 'local' political decisions are made in the national interest.

When the news of his candidacy was announced I did a quick search on what would be deemed the characteristics of a 'good' politician. The following would appear to be what is expected : Be Intelligent, Reasonable, Humble, Honest & Patriotic. Have Fiscal Experience and Clear/Achievable Goals. Have the ability to Think Strategically and Listen to others. Earn Respect and Know when to Quit.

I don't know about you, but I would settle for someone that is not of the 'typical politician' persuasion. Only time will tell but I think he should be given a fair chance.

If he can bring something new to the table, it has to be welcomed.

'Supermarket' Banks - Conflict of Interest

The last 25 years has seen much change in the services offered by Banks. The traditional role of Banks, as 'Deposit Takers', 'Risk Managers' and 'Prudent Lenders', has been morphed into something akin to 'Supermarkets' of Financial Services.

The ambition for greater profits and meteoric rises in business growth has led to a situation where the taxpayer/consumer is now picking up the tab for these misguided ambitions; and trust in the banking system has been severely damaged.

It would appear that the general consensus within banking was that they should offer their customers as many financial products as possible and pass the marketing of this business plan off as a convenient; 'One-Stop-Shop' .

The theory behind this plan is that you should be able to cross-sell as many products as possible to customers so that they are not tempted to buy from another service provider, thus maximising the revenue stream from an individual client. The problem with this targeting of 'Consumer Inertia' is that, the customer will always loose out.

Perhaps it is time to have an in-depth review of how banks market their non-core products to their client base. When the two main Irish banks launched their own Life & Pension Companies, it was commonplace that they would watch out for direct debits coming in from other Life & Pension providers so that they would then contact the client and offer them their own products. They got their knuckles rapped for this practice, but it still does not excuse their abuse of the information they had to hand.

Where one institution has a financial interest in another, there will always be the potential for a conflict of interest. This is heightened where information may be shared between the financial institutions or where recommended investment funds contain large shareholdings of their own stocks. It could also be argued, that the 'conversion' (cannibalization might be more appropriate) of deposit money to cost heavy investment products by some financial institutions may not be in the best interest of the consumer. Given the current need for capital in the banking sector, I am sure that there is no pressure on the branch network to 'advise' their clients to move their deposit money to investment products, as it is not in the banks best interest at the moment.

I think that it is about time that the core product offerings of banks are decoupled from their pension and investment arms and that they are operated in total isolation of each other. The banks should focus on deposit taking, risk management and lending. Targets for generating life and pension business should not be imposed on their staff/managers. In my opinion, the traditional role of the banks is not in line with the long term goals of consumers in respect of pension and investment products. They both have their parts to play in financial planning but you have to eliminate any risks of conflict.

When your business model is based on being a 'jack of all trades' you invariably become 'a master on none'.

'Lazy and Misleading' reporting of unemployment rate

I must say, that I had not given much thought to the way the figures were being interpreted by the media until I read the following on Saturday.

It's probably a negative perception that we could do without, if we want to attract foreign direct investment here.

PS: Can anyone persuade the media to abandon the lazy and misleading tendency to treat our Live Register figures as a measure of unemployment – despite the fact that every month the data includes the statement that: “The Live Register is not designed to measure unemployment”.

Last December the media was brandishing Live Register data to claim that unemployment then exceeded 275,000 – at a time when the internationally recognised unemployment figure was 170,000. The difference between these figures is accounted for by part-time seasonal and casual workers.

Garret Fitzgerald - Irish Times - 4th April 2009

Has the Recession changed the 'General Principles' of Financial Planning?

We are living in very different times at present. The whole Financial Services Industry is in turmoil. Many investment companies are hemorrhaging money, as investors call on their savings to meet current financial commitments. Early Exit Penalties, Market Value Adjustments and Loss of Capital don't seem to matter to consumers. They want their money back, and they need it now. Some of those that have direct debits for savings, income protection, pension, and in some cases life insurance, are cancelling what they deem 'unnecessary' in the current climate.

I think that some of the 'Rules of Thumb' that apply to Financial Planning may have to be tweaked, so that our personal finances can be more 'sustainable' in the future.

DEBT

Long-Term

It is inevitable that we will have to borrow to finance some assets, such as our homes or investment properties. The problem arises when we borrow too much money (relative to value) over mega terms for properties that are too big for our basic requirements. 100% mortgages over 35 years that gobble up 35%+ of our income are a step too far.

The bar needs to be reset at 75/80% of Loan to Value over 20/25 years. The size of the house is a personal matter, but stretching yourself to buy a 'bigger' house also carries with it higher maintenance costs, which will be ongoing. Common sense should prevail.

Short-Term

If you need to buy a car and have to borrow to finance it, you should probably only do so once you have 20% of the purchase price saved. The longest term for a car loan should be 5 years and the repayments should cost you no more than 7/8% of your income.

Do bear in mind that the monthly cost of running the car could add about 75% to the cost of your actual loan. Be cautious with what you deem to be affordable, buy second hand and keep the car for 7+ years. Using the words 'car' and 'investment' in the same sentence can be a bit of a contradiction.

Credit Cards

Simple. If you can't afford to pay the full amount off every month, you probably shouldn't have a credit card.

Taxes

Keep your affairs up to date with Revenue and claim for all reliefs/allowances to which you are entitled. There is no point in putting tax issues on the back burner in the hope that they will go away. The last thing you need is getting a demand for taxes owing, with possible penalties and fines, when you can least afford to pay it back.

Financial Advice

Never, ever, take financial advice from a Bank on an investment or pension product where the Investment Company is an integral part of the Bank.

Savings

You should probably target to have enough money in a high yield deposit account to cover your living expenses + mortgage/debt payments for a period of 9 months. Some say that you should save 10% of your income in non-pension savings products. I say, that it depends on your individual circumstances as every ones commitments are different. The 'savings' deposit account should be your first priority. Once you have achieved that milestone, it is then a good idea to start looking at 'investing' in low-cost index tracking unit linked funds.

Family Protection

We have an uncanny habit of going into denial when it comes to taking out life insurance or other protection products that would give security to our dependents. Simply brushing the requirement aside by saying that 'I have a policy' or 'I am covered though work' is not good enough. It is the level of cover, relative to your needs and affordability, that is important. Most 'death-in-service' work related life cover policies insure the employee for 2 or 3 times salary. For someone with dependents, this can be a paltry amount of money. Think 8 to 10 times; and buy convertible term assurance. You will be surprised at how inexpensive it is. Always insure the stay at home spouse, not just the bread-winner.

When it comes to Specified Illness Cover, you should always keep this separate from any life cover you may have for mortgage related debt. It is expensive, so be realistic about what level of cover you might need so that it is affordable.

Pension

If your employer has a facility whereby they will pay into a pension scheme subject to you making a personal contribution, always take this option. If you want to make additional contributions to the pension you should start early. You are not signing a commitment to retirement age so you can reduce or stop payments at a later date.

The general consensus in the market would imply that you will need a fund of 20 times your annual income when you retire. That's fine, if your only retirement asset will be your pension policy but do bear in mind that you will have equity in your home (if you need to downsize) and you will still have an earning potential at 65. If you are a business owner, you should be able to realize a value from the transfer or sale of your business. If you can afford to buy diversified property (commercial/foreign), you should add this to your pension assets.

Summary

It is my opinion that the 'general principals' of financial planning remain intact. The only caveat that I would add is that we will have to be a tad more cautious about taking on too much risk. Asset building should be done slowly and we have to diversify our pot of savings/investments as much as possible.

If you are of the opinion that, on a scale of 1 - 10 (where 1 is 'no' risk and 10 is very high risk), you can stomach a '7' you should probably deem yourself a '5' on the scale. I have yet to come across a case where an investor takes a case against an advisor or product provider for not recommending a higher risk investment.

Self-Investing

When we think about investments, we normally think about them in terms of property,equities or bonds. The current economic climate dictates that the market for these investment assets is very weak at present. When you couple this with negative consumer sentiment and the continuing uncertainty, immediate new opportunities for these products looks bleak.

That said, it is probably a good time to review your existing investments. If you were running your own business, you would certainly be scrutinizing your cost-base at present and be looking for more cost effective solutions to reduce overheads.

The 'easiest' investment opportunity is the one where the least amount of effort is required. We tend to pass our hard earned cash on to someone who will advise us on where we should be putting our money for future growth. In the current environment, it may be a good idea to consider investing more of that money, in yourself.

If you ask yourself the question "How can I add value to my business/career for the long term?", you will probably come up with an answer that incorporates some sort of immediate sacrifice and hard work. The trouble with this is that the results may not be tangible or easily measured any time soon, but if you have a plan and put the effort in the long term pay-off will be worth it.

If you are a business owner you may need to sit down and write a 5 year plan. Running your business on a year to year basis is not a good place to be at. In boom times this may work out fine but when things start to head south, it is hard to adjust to the circumstances with any degree of pace. It may even be necessary to alter or change the current business model that you adopt.

So, what can you invest in? Perhaps it is a good time to (i) promote staff development (ii) invest in new technology or equipment (iii) get to know your customers better (iv) advertise or (v) diversify into a totally new uncorrelated business. Any one of these has the potential to add to the value of your business assets.

If you are an employee, you could just as easily substitute the word 'career' for business and diversify your skills to include things like (i) an additional language (ii) computer literacy (iii) personal finance education or (iv) work on any perceived weakness that you may have.

Irrespective of your trade or profession, now is a good time to take stock of your life and invest in something that will add value to your earning potential in the years ahead. Others will be just marking time/trying to survive at present so the opportunity is there to try and steal a march on the competition by being proactive in your approach to your business/career.