The battle continues: Gareth Morgan, life insurers and Kiwisaver

Gareth Morgan comes out guns blazing again – I’m enjoying watching the exchange.

First up – GMK have published the ‘fan mail‘ from the life insurance companies.  Along with the insurance company’s ripostes, Gareth has written short rebuttals.

AP’s Greg Camm:

“If there were a sign on a beach saying “Sharks in the water” you can be pretty sure the number of people who’d venture into the water would be small. No matter that a shark may not have been spotted for over 20 years or indeed there may never have been a shark spotted at all.”

Gareth Morgan:

“We note that AMP is one of the life insurers censured by the ASIC in Australia for the mis-pricing of its units and required to pay compensation”

that was in 2004, not long ago. The ASIC censure included the direction to:

“…require AMP Life to obtain an independent, external review of its unit pricing processes to ensure that similar issues do not recur.”

and the press release also stated:

“Unit pricing issues are of concern to regulators across the globe”, pretty much confirming Gareth’s thesis.

Apparently AMP was meant to fix the unit pricing issue – but no word on what happened in Greg’s article.

Jim Routledge from AON send an email to GMK, referring to the Kiwisaver calculator and demanding:

” Continued misrepresentation of the AonSaver fees may lead to legal action. “

Gareth has the final say (for now I guess):

“Mr Routledge was proved incorrect…. … AON … altered its fees in a re-issued Investment Statement…”

Isn’t this fun!?

Chalkie, who Gareth outs as “industry scribe Jenny Ruth”, also had some fun.  GMK clipped the article, so you can read it online. Nice photo Gareth….

Apparently Chalkie is guilty of deriving income from industry funded trade magazines. Quelle Horreur! Given the state of journalsm salaries I’m really not surprised, but it was perhaps a little dangerous of her not to mention it.

Gareth’s rebuttal to Chalkie is worth a read. I was particularly amused by Chalkies statement that Morgan’s investment team was too small. It may be six people, but Warren Buffet and Charlie Munger have managed far more money with far less people, and pretty successfully too. A stellar yet under the radar firm I interviewed with in Boston a few years back had about 6-8 investment professionals as well – and quite a few more billion under management. The Yale Investment Office has a massive 20 professionals, yet manages over $18 billion real dollars – and they made $3.9 billion last year, and 17.2% net of fees over the last 10 years. That’s $195m per professional – care to beat that life insurers?

The problem is that the more people you add, the more they want to do stuff – like buy and sell. We call that churn, and that is generally bad as it costs the fund money to trade, and  you are relying on market timing. But long term investment is about asset diversification, not market timing. Lose the people, lose the Bloomberg screens and your long term performance should get better.

Investing is not about the number of people, nor even about how good they are in a particular period. Investment is abut boring decisions made and kept for a long time. Being in NZ means that we are less tempted to look at the screens and try to trade, while Gareth jaunting around the world actually gives me comfort that his antennae are well tuned to the global macro trends that all long term investors need to be aware of.

GMK as also updated the calculator with more funds, added a trust deed checklist (lots of red crosses, but two columns missing) and published Gareth’s submission to the Select Committee on Finance and Expenditure.

About Lance Wiggs

@lancewiggs
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3 Responses to The battle continues: Gareth Morgan, life insurers and Kiwisaver

  1. benkepes says:

    It’s hard not to be attracted to GMK. Wellington based, NZ owned, honest and entrepreneurial…..

  2. Jenny Ruth says:

    My primary source of income is not from writing for savings industry-funded trade magazines — none of the publications I write for are industry-funded. Like The Independent Financial Review, all the publications I write for sell advertising but that has never affected what I write. Unlike Morgan, I’m not trying to sell anybody anything.

    As I said, unitisation is the global standard — Morgan wants us to believe just about everybody else except him is wrong, bad etc. I don’t think so.

    His allegations about “hidden” fees and mis-pricing are just that, allegations. Where is his proof? Simply that there have been a few cases overseas and we don’t have good policemen. I don’t think that’s good enough. And all the Kiwisaver default providers are expressly forbidden to charge hidden fees and their offerings are government approved. I did ask ING about any hidden fees — ING marketing general manager Steven Giannoulis insists that all the fees his company’s charges are fully disclosed. I also asked a number of other fund managers the same questions, including Tower, Axa, Fisher Funds and AMP, and got the same answer.

    As for Morgan’s calculator, why is the “hidden” component of every manager’s fund’s fees, except his own, identical when their declared fees vary considerably? I reckon that alone discredits it.

    Ditto all the rubbish he has been talking about reserves — no products currently on the market have the kind of reserves he has been railing about. They were the product of the old-style defined benefit-type pensions (incidentally, if he can tell me where I can buy one of the latter, I’d probably be in with boots on — nice to have a guaranteed annual income indexed to inflation in retirement).

    I asked Morgan for the performance data on his conservative and balanced portfolios and he simply referred me to the growth example on his website.

    Like most fund managers, Cullen’s investment team farms out the different parts of its funds to specialist managers, something Morgan told me he doesn’t intend to do — again, when he isn’t simply wrong, Morgan is economical with the truth. Here’s the original chalkie column now published on stuff. http://www.stuff.co.nz/4117505a1865.html

  3. tylersdad says:

    good reply Chalkie. i take it you saw my posts on this sameblog under the ‘blogpost’ entitled ‘GM KS Calculator’ – see top right-about the 5th article. for those who read this and are sucked in by the liturgical prophesies of Mr Morgan and his almightier than though protestations of underhanded dealings then i suggest you also send money to Mr Benny Hinn. do you really think the govt will allow KS schemes to be marketed to the public with hidden fees????????????if this is the case then why are you not calling for the Govt Actuarys head to roll as an accomplaice to this skullduggery and treachery. no doubt Morgans next allegation is that all the KS providers (except him) have money invested in Bridgecorp.

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