It’s hard to think that City Life will in February 2016 be 45 years in business.

We started to trade back in 1971 and like most new businesses I don’t mind admitting we started on a wing and a prayer, plus an overdraft facility of £3,000 IR from Des Roche who was then the manager of The Munster & Leinster Bank (now AIB) St Patricks Bridge in Cork. My father used to tell me that his bank branch was also the bank used by Vincent O Brien the most famous of all Irish race horse trainers. Apparently he was always loyal to that bank as when he needed money at the start of his career they gave him the credit he required. They were the good old days when the local bank manager had some personal discretion.

The business that we operate now, is quite different to what it was at the beginning. Back then we tried a little of everything; car insurance, building society loans, auctioneering, but also much of the business that we concentrate on today; Life insurance and illness protection for families and businesses, saving plans for college fees, investing money to try to get a better return for our customers than bank deposits, building up funds to enable people to retire, and subsequently the investing of those pension funds to provide income in retirement.

As a business evolves over time it is normal and natural for changes to occur in the way business is done. Some changes were instigated by us, some were forced on us either by poor trading on our part or indeed economic conditions outside of our control.

Problems create opportunities.

About 30 years ago when we were still doing general insurance, a business that requires very tight credit controls, our company overdraft went well over our agreed limit and we got a wakeup call from our still just about friendly bankers.

Before our meeting with the bank we had a long hard look at where our business was going and indeed the parts of our business that were losing money.

It was decision time and before the meeting with our bank we held a very serious meeting with our accountants and agreed a plan to make some fundamental changes in the way we would be doing business into the future.

Our proposal to the bank subsequently was;

  1. We would sell off the general insurance business.
  2. We would sell our three building society offices.
  3. We would streamline our business and concentrate on life insurance, savings, lump sum investments and retirement planning.

We also advised the bank that we would reduce company expenses considerably by getting rid of all company cars and that we would link our salaries to agreed business targets.

Thankfully the bank agreed to support us and we learned a serious lesson that has benefitted us tremendously ever since. Definitely that problem created an opportunity for us to refocus, plan, and move on.

A few years after our banking difficulties, in 1996, I published a book called “Don’t be Afraid to Dream”.  In one of the chapters I highlighted a letter that I had written earlier to The Irish Broker Magazine. In the letter I criticised the bad value, and the high costs and charges in our industry particularly in relation to pension plans.

Trail income versus up front commission

I was looking for a real change in the way business was being done. Instead of the Life Insurance Company paying a commission to us in relation to the first annual premium I wanted most of the first year’s pension payment to be invested on the consumer’s behalf and for payment to us to be as an annual small percentage of the growing fund, rather than a percentage of the initial premium. The same way that the life company was paid.

What I was looking for was that the insurance company and City Life would share the total annual management charge of what was at that time similar to today, an average of about 1.5%.p.a.

I thought that was fair and reasonable and eventually after much discussion and an occasional argument or two, one Life Insurance company agreed to run with my suggestion and the move from initial commission on the first premium to trail of income from the growing fund became a reality.

This change was of major importance as it gave the consumer much better value and transparency especially in the important early years and it gave our company a regular and constant income stream which was hugely important in the recent financial crisis when new business effectively dried to a trickle. Yes it cost us in cash flow in the early years but the long term benefits were substantial.

This way of doing business was of great benefit also to City Life Galway. When we opened that franchise just over four years ago. Pat O Dwyer in Galway was able to set up a very successful business very quickly on the back of the trail of income model we had created in Cork.

Reducing complexity

At an MDRT meeting some 5 years ago Eamon and I met with fellow MDRT member Barry Woolley a very successful financial advisor in the UK. We met Barry for lunch and the objective of our meeting was to pick his brains about the new way they had of doing business in the UK.

It was the first time I had heard of a funds platform whereby the various funds and the fund managers required could be available on one computer platform and put together under one policy document.

For us the significance and implications were major. In Ireland we deal with six or seven life Insurance companies and it is common to have business arranged for any individual customer with three or four different companies. As a result, the rebalancing of our customers’ investments or retirement plans, in line with their attitude to risk, can be time consuming, costly and very complex. In addition, to have lump sum investments in particular with different companies, can be very tax inefficient.

As a result of our meeting with Barry we met with all of the major companies that we do business with, to see if they would set up something similar in Ireland for us. It took time but last year we were given access to a funds platform with many of the world’s best managed funds available on the one computer programme.

Valuations and rebalancing facilities are instantly available and the benefits to our customers of having all their investments or Approved Retirement Funds under one roof are considerable.

Barry thanks for your help and advice.

Ted Dwyer Family Business

January 2016