Last Sunday the 15th of December 2013 was the date that Ireland officially emerged from the EU bailout. That day marked the start of the beginning and not the end of anything. As Monday was the same as Sunday! There are however some grounds for optimism as the number of people unemployed in Ireland is falling quite rapidly.
As I start to write my 12th blog of 2013 and because readers from 24 countries have already had a look at my blog I think it might be of interest to have a brief look back at what happened in Ireland and to consider the future.
Yes we were a crazy country for a while where the ability to repay loans was no longer a question being asked by bank managers! Perhaps they looked at the ability of the customer to pay interest on the borrowings but I would suggest even that didn’t happen in many cases.
It is hard to imagine how we had got to and where we were as a country. Yes we had a surplus in our balance of payments created by considerable volumes of Stamp Duty on exorbitantly priced properties that we were selling to one another, which was financed by uncontrolled borrowings from reckless bank managers.
It is not my intention to lay the blame anywhere in particular because I think all of us need to learn from what happened and try as best we can to move on. Yes we had foolish bank managers and borrowers.
We also had poor town planners who allowed the desecration of many Irish towns and Villages with planning permissions that simply should never have been granted. We had people in charge, regulators and politicians who would do things much differently and indeed much better the second time around if they got the chance.
Hopefully last Sunday will see the start of the end of a very painful economic period in Ireland’s history. I have been in business for nearly 43 years and this last crisis was sharp and very painful. Definitely the worst I have experienced in my working life.
The late Ben Dunne a great Cork business man who founded Dunne Stores used to say that opportunities create problems but that on the other hand problems create opportunities. I think what happened and where we are now, typify what he was talking about many years ago.
It seemed for a while that we had the opportunity and indeed the possibility of unlimited wealth based on an unsustainable property bubble. We were very wrong!
The challenge now for all of us is how to turn the problems of the past into opportunities for today, especially for those of us in Business and perhaps like me in small Family Businesses where the best prospects are to be found for long term sustainable employment growth.
As I write this blog in December 2013 we have in our company more people employed in our businesses in Cork and Galway now than ever before and that is really satisfying. In fact during the crisis when panic set in and new Business totally dried up in was so wonderful that the business model we started some 15 years ago showed its true value. It enabled us to keep our superb staff employed and boy were they needed to handle the Financial Crisis.
In Ireland 15 years ago regular savings and retirement plans were expensive. They lacked transparency and liquidity and in my view gave our industry a bad image. They had hidden costs and charges, high early commissions and encashment penalties.
I like to feel that we played an important part in the transformation of the industry in Ireland where now anyone can go to our website www.citylife.ie or call to our offices in Cork or Galway and see the fee charged for setting up any savings, pension or lump sum investment and to know that 100% of the monthly or annual contribution will be invested. That’s a far cry from where the industry was positioned 15 years ago.
Two people in the industry at that time working with Friends First helped me to set up the first savings plan in Ireland without up front commission. They were John Murphy brother of Mike Murphy the Irish TV personality and Simon Hoffman who still works with Friends First.
They went out on a limb to make it happen and I am sure caused major difficulties to their systems people! My view from the outside was that John made the decision and Simon was left to sort everything out! Well done lads!
The way we operate now is that we charge an annual service fee typically of up to a half of 1% pa of the money we manage which gives us an income stream based not on the new business that we do each year but on the money we help our customers to manage on an ongoing basis.
The other important factor is that we are not trying to earn commissions from doing transactions on our customers account. We simply want our customers’ money to grow in line with their attitude to risk. The more it grows the better for us as our income is directly aligned to our customer’s asset values. If our customers are dissatisfied with our service and move their business elsewhere then we lose out not them.
What did we learn from the Problems that we and our customers encountered and what Opportunities arose?
I love reading about Warren Buffet who has some wonderful sayings like “I tend to be fearful when people are greedy; but greedy when people were fearful”. His other favourite expression that he would have used to sum up what happened in Ireland recently might have been “when the tide goes out you get to see who is swimming naked”!
In Ireland people had built their wealth on money borrowed from the banks to buy property. Many had also taken considerable positions in the shares of those same banks.
When the tide went out naturally the over lending by those banks to the property sector created huge holes in the balance sheets of those banks. If the Government guarantee and the EU bailout hadn’t occurred, I have no doubt that all the banks would have gone to the wall and the bank deposits of all would have disappeared with the outgoing tide.
Well as we know the tide went out overnight, like an impending tsunami and has not come back in. Property values are still off 50% and the banks shares (apart from The Bank of Ireland saved by Wilbur Ross and others and existing shareholders brave enough to take up two rights issues) are now totally worthless.
When the tide went out it was a time of near panic for customers of City Life too as the attitude to risk was discussed and considered for the first time in many years. Everyone was now just trying to survive and conserve what was left of their wealth because probably 75% or more of most people’s wealth in Ireland at that time was in property and bank shares.
The importance of the younger generation in our Family Business was now very apparent as we set about helping our customers though this major Financial Crisis. We were for a period, wealth councillors rather than advisors and one of our main tasks was to encourage those who had exposure to the stock market not to exit at the bottom and thankfully most took a sensible long term view and have seen their depressed values rise with the markets since March 2009.
My son Eamon helped by some of the key people at City life devised the City Life investment process which was a three year plan to match our customers money, under management much closer to their current attitude to risk. This meant an indebth detailed meeting with every customer to establish their current attitude to risk and their risk tolerance.
It was the most challenging and important work we have ever done as a Company. Now looking back at the process I would have to say it was a process embraced totally by our customers who now have a much better understanding of where their money is invested and why. Similarly our fantastic support team really got behind our new way of doing business and for that we are very grateful.
At the same time we had to scrutinise all the Insurance Company products to unravel the complex investment plans they had invented. Those readers from Ireland and The UK will know what I mean…managed funds, balanced managed funds, performance funds, with profit funds. All types of mixed investment funds where it was hard to see exactly in what asset class they were invested in or indeed what percentage of their money was invested in each segment of the market.
We have all heard the expression “don’t have all your eggs in the same basket”. In Ireland 10 years ago there were only two baskets and they both full of property and bank shares. (Yes I can hear you say indeed we were all basket cases!)
Our process now starts with identifying our customer’s attitude to risk. Will they be comfortable if their investments fall in value in a year by 20% or more which could and will happen if all of their money is invested in equities (shares). On the other hand if say 50% of their money was invested in equities and the other 50% was invested in other lower risk asset classes a very different outcome would result.
For example if the other 50% was invested in assets that grew in value by even 5% in the year that the equity market fell by 20% the overall fall in value would be reduced to 7.5% Naturally if the equity markets had a great year the upside would also be limited. Most of our customers are happy with that.
As you will understand from the above we were now starting to have a real serious dialogue with every customer to make sure we all understood what their attitude to risk was and more importantly that they understood exactly why and where their money was being invested.
We then did a study on the risk questionnaires available and each one of us did a self analysis to see which one we felt was the most accurate and that is the one we now use.
Eamon then designed The City Life Asset Allocation Model which has a different asset allocation with each risk profile from 1 to 7 with 1 being low risk low and 7 high risk.
If someone has a low attitude to risk and if capital security is more important than high growth they might be a 2 on the risk scale and would have 17% of their overall investments invested in equities and the balance in lower risk assets. On the other hand if a customer scored 4 on the risk scale then 36% of their funds would be in equities with about 18% in property with the balance in lower risk equities.
The final part of the initial process is that when the asset allocation is decided and agreed then each of the assets classes being managed are put with a fund manager who has produced good solid solids over the past few years. Their performance is monitored by Eamon every 3 months.
And so this is the way we now do Business and definitely we have learned from the Financial Crisis in Ireland and the problems gave us the opportunity to really vamp up our investment process. Each year or indeed sometimes more frequently we will revisit each customers account with us to monitor performance and to rebalance in line with current attitude to risk. In this way, right now when some equity funds are up by 20% or more for 2013 it gives us the chance to lock in some profits for our customers.
Is our process perfect? Of course it is not but it is much better than it was and we are continually trying to improve it. The next time the equity or property tide goes out our customer’s savings, investments and retirement funds will be positioned in a much more diversified way to swim against the tide so that their downside will be reduced and more understandable and manageable.
So as I said this is my last blog of 2013 and my 12th to date. I am really enjoying the experience because it gives me the chance to air my thoughts and ideas and to press a button and my blog goes off into the clouds and anyone in the world who wants to read it can do so. It is a new magic world for me and I love it.
Thank you Greg Canty of Fuzion in Cork for being able to tell me at our first meeting “Ted you should send a blog”. He knew that it was something that I should do. Thanks also Greg for showing us how to do it. My sincere thanks also Michelle Coakley at City Life who edited my words and helped me to launch them into space.
To both of you and anyone who is reading this blog times have been tough but maybe the darkest hour is just before dawn. Enjoy Christmas and next year if you can and if you are in Business make a New Year resolution “take one a new employee”! Maybe with your help the year of 2014 might just be the start of the new beginning!
Ted Dwyer Family Business