It is interesting to look back over the last 10 years to try to make some sense out of the roller coaster crazy times we have gone through in Ireland.
10 years ago we all knew, deep down, that it was stamp duty from inflated property prices in this country that was funding our government’s day to day expenditure. What we didn’t realise was that the Irish banks were going to go bust because of too much lending to the property sector, when property prices eventually corrected by 50% or more.
Many Irish people were immediately financially wiped out when property values fell by this amount. The entire country suffered and is still paying, and will continue to pay for a long time, to fund the bailing out of the banks, with increased taxes and levies.
The value of Irish bank shares was also destroyed and the only non-nationalised bank now, Bank of Ireland (Government stake about 15%), saw its value fall from almost €20 to 7 cents. Now over 6 years on from the bottom of the last major stock market crash the value is still only hovering between 35 cents and 39 cents.
The collapse of bank shares was also financially crippling for many of our older people, and indeed many of our retired bankers who had nothing to do with the crisis, but who were dependent on the dividends from their AIB and Bank of Ireland shares to give them a little extra income each year.
It is difficult to know what the value of the Bank of Ireland shares should be now because 10 years ago there was less than one billion of their shares issued. Now after a few rights issues, to prevent nationalisation, there are, I think, closer to thirteen billion shares issued.
It is easy to see now what the problem was then!
Irish people have a love for property. Second on their love list was probably bank shares. These should normally be two totally different asset classes but in Ireland 10 years ago this wasn’t the case. The high bank share values were totally linked to property values remaining at the very high inflated values which was of course caused in the first place by too much bank funding to that sector.
It reminds me of that wonderful Harry Bellefonte song “There’s a hole in the bucket!”
What a mess! What to do?
I still remember well the awfulness of 2008 when all hell was breaking loose in the financial world and nobody knew what to do.
One thought that kept coming back to me was problems create opportunities. At City Life, we just had to find the opportunity from the current problem to do something positive for our customers and also for our company.
The first thing we had to do with our fairly financially traumatised customers was to analyse what they had and where it was invested. We then had to see how they were fixed financially and most importantly to explore with them what their attitude to risk was at that time in 2008 after what had happened.
At the same time we had to look deeply at our own way of doing business to see if our customers’ pension funds and other investments were invested in asset classes in the right proportion to match their attitude to risk. As part of this process, I went back to college and become a Certified Financial Planner. Understanding risk was a key part of this re-training.
Out of that truly awful time came the most important fundamental profound change to the way we do business today.
Eamon and I had many meetings and discussions during that awful time and he suggested, and I agreed, that it was time for City Life to have a unique investment process so that all of our customers savings, pensions and retirement funds would be invested now and in the future in line with their attitude to risk. Little did we know that the financial advice industry would follow this lead quite rapidly in the following years!
It was a big undertaking involving major research and much trial and error before we developed our City Life model portfolios, designed to match whatever risk profile and time frame our customers had. At that time, we saw an emergence of risk profiling tools and questionnaires, so we had to evaluate all the risk questionnaires available to get one that we felt gave us the most accurate description of what our customer’s attitude to risk was.
We then had to do a thorough and time consuming review of each customer’s current attitude to risk and naturally, on joint investments, we often have had to come to a compromise agreement between both two spouses. Not always an easy task!
Looking back I think we have come a long way with our customers who now know (I hope!) why and where their money is invested, why and by whom their money is being managed for them and naturally what we are getting paid for looking after their interests on a day to day basis.
Interestingly, right now as equities have been on a strong run since March 2009 (notwithstanding the little Greek and Chinese hiccups recently) and with Irish commercial property starting to show good yields and capital growth, we are reminded again about what the wise old man said years ago about not having all your eggs in the one basket.
He recommended that we should have a third of our money in equities a third in property and a third in cash for the rainy day.
Maybe right now I might not be too far wrong if I had my money invested in a similar fashion, but then again, I am not you!
What do you think?
Ted Dwyer Family Business