June 2010

Changes at Moneyscience

It is with deep regret that my friend and colleague of the past 6 years, Don McColl, has chosen to exit the Finance & Insurance industry. During the past 2 years, things have been very different in our industry.

1. We entered regulation where we are required to qualify to remain in this industry;
2. Business has been harder to place due to lenders all changing their loan criteria;
3. Several of the lenders have reneged on brokerage payments to us. (I am sure that those of you who are self employed and who have lost money through creditors closing down can relate to this frustration). These are only a couple of the many reasons Don has chosen to seek permanent salaried employment. I have tried to convince Don to stay on as a consultant to us and I am very hopeful this will happen.

I will maintain all clients with loans through Moneyscience and am available on email, phone, fax or Skype. We will visit Dunedin to hold another of our meetings there in the last week in July and will confirm the dates soon. I have reviewed many of the Sovereign clients’ loans and found several where you are not receiving the 0.1% discount on your rate. I have applied these. Please check your interest rates next statement & email me if you would like me to check this for you.

Education

As already mentioned, the Finance Industry has entered into regulation. We are all required to complete qualifications with the highest of those being an Authorised Financial Adviser (AFA), who is able to transact Mortgages, Insurance and Investments. A lesser qualification covered Mortgages & Term Insurances only, and excluded any form of investment advice.

Then the rules changed last week. Now we are probably not required to complete any formal qualifications to transact Mortgages & Term Insurances. This is still not set in concrete, however Moneyscience has taken the view that ALL STAFF will attain the level of AFA irrespective of the law. We feel that this will give our customers better service.

Peter has completed the first 2 stages of this and Alan has completed his first stage. There is a pass rate of 100% with anything lower being unacceptable. This change and regulation will cost us about $6,000 each to complete this year, however we feel that it is an investment in ourselves and it is actually really enjoyable and empowering.

Interest Rates

I am aware that many lenders have many clients in severe trouble and the repossessions and defaults still happen at the same pace as they have for the past year. I expect this to continue for a year or two yet. I believe that the property market is NOT very buoyant at present and increasing interest rates & increased inflation will not help that. Therefore I believe that increases in interest rates will be slow, with our mortgage floating rate at the end of this year at about 6.5%.

Interesting Australian article: Banks profit from exit fees

Banks made $5bn in establishment and exit fees last year from customers switching from fixed to variable rate loans.

"The increase in housing fee income was driven by establishment and early exit fees, with the available information suggesting that break fees on fixed-rate loans accounted for a significant proportion of the overall growth in fees," the RBA said.

Figures from the Reserve Bank of Australia indicated that banks earned 12.7bn in total fees last year, an increase of 9%, from residential and business lending charges.

The amount earned on fees from home loans increased by 17% to 1.23bn, while personal lending fees grew by 14% to $522m and credit card charges went up by 8% to $1.43bn.

I point out here that break costs from Sovereign are calculated to be only what they lose from you breaking. This is the most fair in the market. Others charge:

1. A fee for breaking the loan (up to $500) - Sovereign do not charge this;
2. Break cost - this is the amount the lender loses from your choice to break a loan. This is fair as YOU choose to break the loan, however not many banks charge this, they choose another much more profitable method;
3. Break cost calculated as a $ per $100,000 which has profit for the lender - Sovereign do not charge this;
4. Break cost calculated on the difference between the wholesale rate at time of lending compared to wholesale rate today - this could be many thousands of dollars (I have seen fees of upwards of $35,000);
5. Break penalty - this is a penalty (profit) the lender charges you because they can. Sovereign doesn’t charge this;
6. Refix fee - this is between $100 and $250 usually. Sovereign doesn’t charge this.

Insurance

Insurance costs for level life insurance are to rise by about 15% or more on 1 st July. Please ensure that your Life Insurance is in place before then to lock in the current costs for the next 10 years. Waiting a month will cost you 15% per annum for ten years!

Kiwisaver

For the past year we have been considering which Kiwisaver supplier we felt was the best. One of the problems with Kiwisaver is the fees that the companies charge and these are predominantly hidden. For example, a large company may offer a scheme, but they are really just the front for it, taking their fee & subcontracting the investment to another firm, who also takes their fees and in turn may pay another company for the trading fees.

I am not very comfortable with giving money to someone else to invest on your behalf, and with the government contribution, even if the return is nil in the first year, your actual funds can be double or more. Therefore even a negative return is a fantastic return on your funds invested, therefore the interest for companies to work in this Kiwisaver Investment market.

About February this year we decided that we would recommend Huljich as the fund we were prepared to put our own funds into. But then over the next month there was some negative press & we waited to see what the outcome was. The bulk of the press was created by opposition companies and we feel this was predominantly "Tall Poppy" syndrome.

Really, I am sure you will agree with me that every company & every one of us make mistakes. I believe that the measure of our credibility isn’t how few mistakes we make, rather the way we handle the mistakes. I have been very impressed with the way Huljich have handled the situation and therefore we recommend them. They have a flat fee structure, good returns, solid reporting and are quick to change if they see that they can do something better. As an additional note, who better to invest our funds than an ex Governor of the Reserve Bank?

We have chosen Huljich as our personal provider for Kiwisaver. Forms are being put onto our website if you are interested. Thanks for reading..