Jill Kerby

 

A recent survey of 1,000 adults by the insurer Friends First produced some alarming results: most people (70%) have seen their household income drop in the past year; 40% say their mortgage payments are their biggest concern and 45% fear that either they or their partner could lose their job in the next year.

But one of the ways they are coping with their financial downturn is to –understandably - cut down on their insurance products, including motor and home insurance.  However, a very worrying 13% have already cancelled insurance policies with a quarter of those people admitting they’d dropped their motor cover.  Does this mean that they are now driving uninsured, or that they no longer have a car to drive?

Aside from breaking the law, uninsured drivers are taking a huge financial risk should they have an accident, as are 13% who said they got rid of their buildings insurance, something else you are obliged to have if you are a mortgage holder.

Disturbing as those figures are, 28% had cancelled their life insurance, 22% their critical illness cover and 10% their income protection policy.

The life insurance cancellations are very worrying, given how low the coverage already is at just 43% for life assurance, 18% for critical/serious illness insurance and 9% for income protection and how important this kind of cover is for anyone with a dependent partner or children.

Term life insurance remains one of the cheapest forms of insurance in Ireland compared to other countries and premiums have remained quite static,compared to the way non-life insurance premiums have been soaring, Martin Duffy of Irish Life told me last week.

Another insurance, serious illness cover, which is very much aimed at self-employed people who do not enjoy employer-based protection benefits and especially to women, who work both in and outside the home and who are also woefully uninsured, is also a subject of cancellations as the recession bites.

Irish Life, which has paid out €178 million worth of serious illness claims in the past decade, has just relaunched its serious illness insurance, extending the tax free cash benefit to 10 conditions or illnesses where there is an early diagnosis – for example, non-invasive breast cancer tumours or early prostate cancer diagnosis.  There are 37 specified conditions and illnesses covered by Irish Life plus another 10 for partial payment.

This has been on of the weak points of serious illness policies up to now as so many more illnesses like cancer are being caught early by advanced screening (especially the breast and prostate cancer screening programmes) and it is something that Irish Life recognized needed to be improved said Mr Duffy.

Under the new contract, Specified Serious Illness Cover, policy holders will receive up to half of their agreed benefit to a maximum of €15,000, whichever is the smaller figure.  Such a claim does not stop future claims on the policy, he said.

The cost of €100,000 worth of serious illness cover for 15 years for a 45 year old women – age 54 is the average age of a breast cancer diagnosis – is €68.97 per month under the new plan and just over €75 a month for a 45 year old man.  (The average benefit is €60,000.)

This may sound expensive as incomes are falling and belts need tightening, but before people automatically cancel valuable protection policies “they should give us or their broker a ring,” says Martin Duffy. “Rather than leaving your family with no benefits if the worst happened, you can scale back” and make savings that way,” he said.

You should also certainly shop around between the providers to see whether you can make additional savings, but keep in mind that the older you get, the more expensive all protection policies become.

Is serious illness cover worthwhile, even in a downturn like this?  I think so.  I have a policy myself (not with Irish Life) which would cover both my annual expenses and the cost say, of hiring a housekeeper to take on many of the domestic jobs I perform for my family that I’d be unable to do so due to a serious illness.  I have this cover because as a self-employed person, I don’t have benefits paid for by an employer.

A good broker can help you decide what priority you should place on your different insurance policies but don’t forget to check PostBank and other non-commission providers with whom brokers do not deal:

Don’t over-insure your house or car. The replacement cost of buildings has fallen in the past year.  Check the Society of Chartered Surveyors latest rebuilding cost survey at www.scs.ie for the rebuilding value of your home and the Revenue’s website https://www.ros.ie/VRTEnquiryServlet/showCarCalculator) for the actual value of your year and model of car.  The older your car (and the older you get too) the cheaper your car insurance should be.

 -       Agree to a higher ‘excess’ payment that you make before the rest of the claim is paid.

-       Reduce the term or the value of protection policies to cut the cost of the premium.

-       Ensure at least that the breadwinner always has some life insurance and that the homemaker has a minimum amount of cover.  See the Financial Regulator’s price survey: www.itsyourmoney.ie

 -       Give up smoking; term life insurance can be half the cost for non-smokers.

 -       If you also have health insurance, get your policy reviewed and remember to switch to the corporate version of your plan or even the corporate version of a cheaper plan to reduce costs.  (See last week’s column for more details about this automatic savings.)

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PART TWO:  A SAVINGS AND INVESTMENT STRATEGY FOR 2010 – 20/01/10

 

There’s no shortage of investment suggestions out there; it’s the filtering of these recommendations according to your own needs and requirements that’s the difficult part.

 

Since the investments you hold depend very much on your age, your current income and financial obligations, the purpose of the investment (say, for retirement, to buy a house, for education purposes for children, etc), how much time you can or want to commit to the investment and your risk profile, you should have a pretty clear position regarding these matters BEFORE you sign a contract or hand over any money to the investment company or via a share trading account.

 

I’ll go one step further and suggest that since most people with pension funds or other investments are still nursing losses of at least 20% - 30% after the financial collapse that lasted from 2007 to March 2009, that you subscribe to some good investment newsletters and take a basic ‘how to’ investment course (see below for my recommendations) before you do anything.  I highly recommend the use of a good fee-based investment advisor for back-up assistance and as a way to lower fees and charges if you buy unitised investment funds and pension funds, but don’t leave all the research and recommendations to this person:  let 2010 be the year that you finally take full personal responsibility for every investment decision you make.

 

So what are the financial gurus that I mentioned in the first part of this article (a fortnight ago) recommending that you do with your money this year?

 

Eddie Hobbs has listed a number of investment sectors and individual shares that he believes are worth holding for the medium to long term.  Like all good advisors (none of whom support share speculating, by the way) he subscribes to the conditions I mentioned above:  if you are a cautious person, or retired with limited resources and living on a fixed income, clearly stock market shares are not for you and you need to consider less volatile options like bonds or cash funds, annuities, etc.

 

He endorses the buying of some precious metals like gold and silver (say, 5%-10% of your total fund) for anyone who is mainly holding cash on deposit. Hobbs suggests buying a low cost gold ETF, unitised fund (though this is nothing more than the ETF with middlemen charges on top) or in the form of a Perth Mint gold certificate.  The point of holding precious metals is to protect yourself against the continuous devaluing of paper currencies like the dollar, pound and euro.

 

As of mid-January, an ounce of gold over the past 12 months has increased by 37.89% as valued in US dollars; by 25.49% valued in euro and by 23.17% in UK pounds.  Over five years gold has increased in value in each of these three currencies by 166.67%, 142.85% and 208.75% respectively.

 

Eddie Hobbs also recommends that people with large cash sums protect themselves by buying some inflation-linked euro-bonds; he recommends Standard Life’s fund.  Other funds that he believes are worth holding for the medium to long term are JP Morgan’ s Global Natural Resources Fund, the Invesco Energy Fund and the KBC Alternative Energy Fund and Water Fund.

 

Another fee-based advisor, Vincent Digby of Impartial.ie believes that investors need to be wary of the latest stock market rally and doubts if there will be a V-shaped recovery. Developed, western markets could fall in value in 2010, he warns.

 

Digby is only expecting ‘modest’ inflation in the next few years and is not bullish on precious metals. However, he thinks investors should be aiming for a realistic, steady return from their portfolio of 5%-6% per annum but you can only do this with a combination of assets and funds.  These include some cash, some corporate and inflation-linked bonds, ‘soft guaranteed funds’ like Friends Firsts’ Protected Equity Plus 2 fund which includes a floor beneath which your funds will not be allowed to go.  It may also include exposure to developing or emerging markets in the Far East (like China and India) and Brazil as well funds or shares in commodity rich countries like Canada and Australia.

 

Digby does not recommend individual shares, but he believes that people who are interested in taking a more active part in their portfolios should consider investing in a diversified group of low cost, passive ETFs.  On the property front he thinks there is still good value in certain commercial property funds in London where the Olympic Games are being staged in 2012.

 

Finally, Mark Westlake of wealth managers GoldCore.com – and I must declare an interest here as he is my pension fund advisor – offers a series of default investment strategies including cautious and balanced ones that aim to reduce investment risk and volatility by creating a broad selection of asset sectors such as equities, bonds, property, commodities, via the purchase of low cost ETF’s.   The portfolio is reviewed annually in conjunction with the client and adjusted to maintain a steady growth or income stream in line with client expectations.

 

The following are some of the investment/financial courses, newsletters and websites that I have or continue to subscribe to and that you might consider as well. (F) indicates a free service.

     -    The investRcentre.com, one day seminar

-       The investRcentre.com weekly newsletter

-       www.eddiehobbs.com (F)

-       www.dailyreckoning.co.uk (F)

-       The Fleet Street Letter and The Right Side - see www.fleetstreetinvest.co.uk

-       Capital & Crisis, www.agorafinancial.com

-       The Growth Stock Wire, S & A Resource and Daily Wealth – see www.Stansberryresearch.com

-       www.goldcore.com (F)

-       MoneyWeek magazine

-       www.lovemoney.com (F)

 

 

 

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The VHI’s announcement that it is increasing its 2010 premium by between 6% and 9.5% from February 1st has been greeted with the usual mutterings about how it is that the cost of private health services can still be rising when the wider consumer price index is falling by 6.5% a year, resulting in a real cost increase of 14% (in the case of the VHI).

 

The other two insurers – Quinn Healthcare increased their rates by an average 15% in November for 2010 renewals and Avivas Health by 12% last October – also site medical cost inflation (and higher costs set by the government for the purchase of public hospital beds) for their higher fees. 

 

But it should also be noted that the €160 per adult and €53 per child member health insurance levy, first introduced this time last year and increased from this January 1st by €25 for an adult and €2 for a child member (to €185 for every adult and €55 for every child member) is also a factor contributing to the disproportionately higher premiums that the nation’s 2.2 million health insurance members are now paying.    

 

This industry wide levy was arbitrarily introduced by the government – specifically the Department of Health to whom the wholly state-owned VHI is answerable – after the Supreme Court in 2008 threw out the government’s original risk equalisation legislation that would have forced other private health insurers to compensate the VHI for its historic legacy of so many more older members. (This issue would not have existed if the VHI had been privatised.)

 

Today, it is these disproportionate number of older members, (who under our community rated premium system pay the same for their insurance as younger people, but make many more, expensive claims), and medical cost inflation, that the VHI mainly blames for its financial difficulties.  But this is not the whole story.

 

The levy – no, let’s call it what it really is, a tax – was worth c€50 million last year to the VHI, yet despite this subsidy, and the fact that the VHI is still not meeting its legal requirements to set aside a 40% solvency reserve as its two privately owned rivals and every other insurance company in the state must, the state owned company still lost €80 million last year and 120,000 members.

 

It has been suggested before in this column and by other critics of the VHI/Department of Health, that at the heart of the VHI’s problem is more than just legacy issues from its decades as a monopoly, but also the fact that it too often operates as a subsidiary of the Department of Health, rather than as a fully regulated, independent participant in a (relatively) free market of willing buyers and sellers of health insurance services.

 

Proof of this is that despite its huge losses and the fact that its competitors (and every other private sector company) have undertaken cost reductions this past year, the VHI has instituted no major cost cutting or redundancies; it continues to operate a hugely expensive, but insolvent defined benefit pension scheme; it maintains a civil service-based pay and increment scale, and the development of information technology and call-centres, it still operates eight different offices around the country, including one in Gweedore, Co Donegal.

 

So long as the government imposes a tax on VHI competitors to prop up the VHI, or fails to re-distribute a proportion of older VHI members to Quinn and Avivas under exactly the same terms and cost as these older members are currently receiving from the VHI, costs will keep going up and the entire community-rated private health insurance system will be put at risk. 

 

Private health insurance under community-rating is, after all, nothing more than an elaborate pyramid scheme in which younger, healthier members willingly subsidise older, sicker ones…because they expect the same subsidy when they become older. It is, however, younger members who are not joining or who are dropping their private insurance, not older ones.

 

According to independent, fee-based health service consultants like Dermot Goode (see www.healthinsurancesavings.ie)  and Aongus Loughlin of the corporate consultants Towers Watson Health, despite the millions in tax subsidy it receives, they foresee the VHI will continue to be the most expensive health insurance providers.

 

So here’s my first, guaranteed, money-savings tip of the New Year: buy or switch your cover to the equivalent (or lower equivalent) corporate scheme.

 

Few of us realise, says Goode and Loughlin, that under community-rating everyone, not just employers or their workers, are entitled to buy a corporate health care plan, which will be cheaper than its equivalent individual plan.

 

So that’s exactly what I did last week:  I switched my family of three from the excellent Quinn ‘Health Manager’ plan we are on, to the equivalent Quinn ‘Corporate Care Premium’ plan and saved us €231 with that one phone-call.  Had I decided to drop back down to the corporate version, ‘Company Health Plus’ of a plan we had a few years ago, ‘Essential Plus’, I am told I would have saved many more hundreds of euro. 

 

Until the rotten business of the subsidisation of the VHI and the civil service mandarins who oversee it is finally addressed, (but don’t hold your breath), you should do the same, either within VHI or with another provider.

 

Since it’s very difficult to find the VHI corporate equivalent plans – unlike Quinn and Aviva, VHI don’t make this information available on its website – consider hiring a good broker for a modest fee of c€100 plus VAT to do the comparison for you.

 

It’s high time that the c2.2 million people who clearly want health insurance fight back against the state’s manipulation of this important market.

 

 

 

 

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Here's your first mugging of the year

On New Year’s Day, over two million people were mugged in this country. And practically nobody noticed. Unbeknownst to nearly every private health insurance member in this country, an extra €25 and €2 was slipped onto the existing health insurance levy of €160 per adult and €53 per child member.

The levy was unilaterally introduced last year by the government to subsidise their own insurer, the VHI, after the Supreme Court threw out the original, illegal, risk equalisation legislation in 2008 that, had it been implemented, would have resulted in an annual subsidy of tens of millions a year to VHI from the other two private insurers. This levy is an outrage; let’s call it what it really is – a tax.

But it was also outrageous for the government to arrange for it to appear as a footnote in the papers on New Year’s Eve, a day when most of us were either distracted with that evening’s plans or doing our best, for at least one more day, to ignore what was happening outside our own four walls. This first tax increase of 2010 means that a typical family of four with private health insurance will need to find another €480 this year on top of whatever increase their health insurer has imposed - regardless of the value of that plan. For the typical VHI member family of four, whose premiums, it was announced last Tuesday, will rise by c€180 in 2010, their health insurance bill will now be €660 higher than it was before the levy was introduced. Is it any wonder the VHI have lost 120,000 members in the past year? (The price hike, incidentally, was not passed onto corporate members – more about that below.) Meanwhile, do not be deceived: the price of health insurance is soaring and the number of members is now falling, not just because, as VHI insists, the cost of delivering better health treatments continues to defy normal inflation. No, premium costs now because the government, and specifically the Department of Health who oversees VHI, is not willing to properly address two problems - VHI’s disproportionate number of older, legacy members who could be distributed to the other two insurers on exactly the same terms and cost, and the fact that the government should not be in the private health insurance business in the first place. Instead, the Department of Health mandarins, whose empire would go if the VHI was privatized have convinced the government to tax every private insurance member in the state to keep their VHI alive. This government run company has lost 120,000 paying customers in 2009, and it will incur losses of €80 million. It is obliged – like all insurance companies operating in Ireland - to have solvency reserves of 40% in place by March, yet they have steadily fallen since February 2008 from 35.9% to just 22%. And by some form of accounting method known only to its chief executive, the VHI last week claimed it is the most cost-efficient health provider in the state. The VHI is hemorrhaging members and income and it cannot meet its solvency requirements. It is likely to seek a direct government bail-out in 2010. Yet it has not made any sweeping, cost reductions. There is no redundancy plan in place. It maintains a staggeringly expensive (and in deficit) defined benefit pension plan and it still operates six branch and offices in Cork, Abbey Street and the Naas Road in Dublin, in Dun Laoghaire, Galway, Kilkenny and Limerick, and in Gweedore, Co Donegal for crying out loud. This is not a legitimate company operating by the same rules that its owner imposes on its competitors. But unless some solution – other than levies and taxes – are considered the risk is community rated, private health insurance premiums will simply become unaffordable to the wider community: it is, after all, younger, healthier members who are cancelling their policies, not the older ones who are claiming the expensive treatments and benefits. Meanwhile, in light of all of this, allow me to share my first money-saving tip of the year with you: if you are determined to keep your private health cover but need to cut its cost, here’s what you do, because I did it myself last week. Under community rating every health insurance plan must be available to every member, regardless of age, including the equivalent plans aimed at the corporate sector. The health insurance companies do not want you do know this. That’s why they say they are “specifically designed for businesses” and don’t promote the plans in any materiel they distribute to individuals or make it easy for individuals to access information about the equivalent corporate plans on their websites. However, fee-based, independent insurance brokers and advisors say switching to a corporate plan – the equivalent or lower level to the one you have now – is a guaranteed way for individuals and families to potentially save hundreds of euro a year. After finding out the corporate equivalent to my excellent Quinn HealthManager plan last week, I saved my family of two adults and one child €231 a year by simply requesting the Quinn staffer at their call centre to make the switch, which was done after my instruction was cleared with a supervisor. To give them their due, Quinn Healthcare and Aviva Health include all the corporate plans on their website so that you can – admittedly with some effort – compare them to your existing one (or an even lower value plan). Save yourself the effort and pay a good broker a modest fee to do it for you. Unfortunately, if you are a VHI member you won’t be able to check out their corporate plans – they are not available on their website. Why doesn’t this surprise me? Call the broker.

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PART ONE:  A SAVINGS AND INVESTMENT STRATEGY FOR 2010 – 06/01/10

 

I usually start the first column of a New Year with a variation on a theme:  get your finances in order. This year, I think we can all take that as a given. 

 

Now that we are nearly 18 months into The Great Recession – or the Irish Depression, if you prefer – there are few individuals or families that haven’t been affected by near-record unemployment, tax cuts and falling income or working hours.

 

The lower cost of living – at minus 6.5% for 2009 – has not affected everyone consistently, of course. Mostly it has benefitted people with mortgages or renters who have seen their monthly repayments fall dramatically. 

 

The consequence of the deflating of nearly everyone’s wages and asset values (such as property and pension funds) means that most of us has cut back on their spending, and where possible, have reduced their debt and increased their savings.  Many people have reduced their housing, food, insurance and utility costs already and have cut down drastically on their discretionary spending.  People who never had an annual budget have created one, and are sticking to it.

 

This is a process that will continue, not just here, but in most other heavily indebted countries until, well, until debts are paid off and spending becomes affordable again.  Since the days of loose credit are over – the banks are borrowing at 5.6% to lend out mortgages at 3.5% and need to pay off their own debts before they extend any lending to us, and our household debt ratio remains frighteningly high at c175% of disposable income - it could be a very long time before the ‘consumer’ part of the consumer economy is resurrected.

 

The most recent savings surveys, undertaken by both PostBank and NIB, have shown that while the number of people saving is increasing, the amount being saved per saver may not be as high as it was, say, a year ago.  The reason is obvious:  lower incomes means that more people need, at times, to dip into their savings funds to make ends meet.  That too is something we’re likely to see more of in 2010 as the effect of long-term unemployment amongst the c230,000 who lost their jobs in 2009 comes into play and means-tested Jobseeker Allowance (JA) replaces Jobseeker Benefit. (JA, as opposed to JB, takes into account any savings such as redundancy payments and spouse or partner’s incomes.)

 

For those people who do have savings, amounting to tens of billions of euro, the question now is what to do with this money.

 

Financial advisors and reliable economists that this column has spoken to recently, including independent advisors Eddie Hobbs, Vincent Digby, Mark Westlake, Rory Gillen and Friends First chief economist Jim Power have different views about the state of the Irish and global economy but they certainly share one abiding view:  that in light of the enormous (and still growing) national debt, we need to lower our expectations for levels of incomes, property prices and significant equity growth.

 

None of the above experts believe there is any sign of recovery in housing markets; instead there is still some way to go in price deflation.  Hobbs and Westlake, of Goldcore Wealth Management are more adamant than the others that that there is a serious, impending inflationary risk building up in the global economy and strongly advise their clients against large cash holdings (they recommend a portion of cash be converted to gold and other precious metals).  Advisors Vincent Digby of Impartial.ie and Rory Gillen, of investoRcentre.com recommend diverse portfolios, especially for the longer term, with Gillen recommending careful value-based stock and fund picking based on tried and tested technical formulas that aim to eliminate much of the risk associated with the markets.

 

Next week, this column will look at some of their specific saving and investing recommendations, but until then, if you have any interest in maximising your savings and securing your existing wealth – another theme the advisors all prioritise for 2010 – you should at least do the following: 

-       prepare a schedule of all your personal and household earnings;

-       estimate your outgoings, include taxation and occupational deductions as carefully as possibly, including your debt

-       list your assets:  the value of your family home and other property, savings accounts, pension funds, shares and investment funds, land, rental or other non-PAYE income.

-       Prepare a schedule of other less assets – cars, antiques, jewellery, valuable lifestock, collectibles, etc.

Without a clear picture of your assets and outgoings – and of course about your expectations and the amount of risk you are prepared to take with your money  - any investment or wealth protection decisions will be badly informed. 

 

And being ‘badly informed’, is, of course, just one of the reasons why so many people’s finances – or portfolios – are such a mess, and why 2010 should be the year to take proper action to try and get them back in the black.

 

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Women Mean Business – January 2010

 

How you approach your personal finances this year, I expect, will have a lot to do with how you’ve coped with the economic turmoil of the past year.

 

Some people say they’ve never been better prepared for the New Year, having cut up their credit cards and eliminated “shopping” as their family’s main past-time after TV watching; reduced their food bills by 25% (mainly by shopping at Lidl and Aldi, eating less meat, cooking more and cutting down on food waste) and hired a good broker to cut the cost of car, home, health and life insurances.  Dropping the foreign holiday usually means a three or four thousand euro automatic savings too.

 

“This ‘thrift and frugal’ double act could catch on,” a friend of mine remarked recently. “Ending up with a 15% pay cut between us isn’t something I particularly enjoy, especially since we’re paying an extra 10% extra tax [between the levies and more PRSI] but you know, we managed on a lot less in days gone by.” 

 

Mind you, a moment later, she acknowledged that low mortgage rates had insulated the family income in 2009, bluntly noting, “Of course if interest rates go up, we are probably screwed.”

 

Will rates go up?  Undoubtedly.  European exports to the US and UK are getting hammered and the question for the euro-bankers is, can the exporting super tanker shift quickly enough from western to eastern markets to offset the jobs losses and business closures that are the main consequence of the Great Recession in the rest of Europe?   Higher interest rates are not only stifling export business, say commentators, but attract too much foreign money into the euro, which in turn props up the high value of the currency. 

 

All this macro-economics, “is the latest trigger for my migraines” my sister Ann told me recently.  She’s right.  There’s little enough that you and I can do to influence finance ministers and their creatures who run their central banks whose policies have run the western global economy into the ground.

 

So let’s stick with how to position ourselves this year to at least not add to our wider personal finance headaches.

 

The following isn’t necessarily a definitive list of personal finance do’s or don’ts for 2010, but you might look upon them as a sort of fiscal flu vaccine for the immune impaired:  they won’t guarantee that you won’t catch the next bug that’s working it’s way through the system, but they might help you dodge the worst effect of the current illness.

 

 

1)    Review your taxes.  2009 was a year in which not only did income taxes soar, but some reliefs (like mortgage interest, medical and dental expense relief) were reduced.  This process continues this year with the considerable changes announced in the December budget.  Check with a professional tax advisor to see if there are any previous claims that you have not made in the past four years and whether there are any actions you can take now to offset any of the latest announcements. This is a good time to also review your will, any inheritance or succession arrangements you should make.

 

2)    Sit down with your spouse or partner and set out a proper family budget. This involves working out exactly what income is coming into the house, and the level of expenditure.  Divide your budget sheet into two major headings:  essential spending and discretionary spending. Only by knowing exactly how much you earn and how much you spend can you get your finances under control.

 

 

3)    Earn more money -   from your business, from your savings, investments, even from your income-earning children.  This is not the year to let teenagers and older employed (but no longer in college) children enjoy a free ride.  If they live at home and have a salary, they should be paying you rent and a contribution for their upkeep.  This is the Great Recession, not just the downward phase of a business cycle.  Remind them how much it would cost them if they had their own flat and needed to heat it, light it, pay for a broadband/digital telly contract and keep the fridge stocked with beer.

 

 

4)    Review your big ticket purchases and costs:  if you are one of few mortgage holders totally in the black and can switch your variable rate loan to a better provider, especially a cheap fixed rate, do so.  Use a good broker to find you cheaper motor, home, health and life insurance policies. Successive studies show that about half the population has no life insurance whatsoever, while the other half who does, is woefully under-insured.  This is not a good time to leave your family in penury if you were to die suddenly. You need to work out how much it will cost to replace your net salary should you die.

 

 

5)    Reduce your debt, including your mortgage.  Low interest rates and even the fall in the cost of livingt may be a great boost for cash strapped families, but it isn’t offsetting the huge fall in house values.  The debt you carry is not reducing and is a growing burden relative to incomes that have been devastated by higher taxation and in many cases, actual cuts and loss of overtime, bonuses and commissions.  Do your best to reduce other debt this year too, starting with the most expensive, like credit cards, hire purchase and personal loans.  Anyone in serious debt should get a copy of Eddie Hobbs’ book, Debtbusters, which sets out a series of worked solutions for a number of debt scenarios, including those experienced by small business operators. Seek help as well from your local MABS office.   Be wary of professional debt consultants whose primary interest is in making as much money as possible from your debt problem.

 

 

6)    Review your savings, investments and pensions.  If you don’t feel confident about doing this yourself, this is the year to invest in a proper, professional, fee-based financial review.  It will probably cost you at least one to two thousand euro, but if done properly could save you a fortune going forward, especially if all you’ve ever done about your retirement is to depend on your business, house or disjointed pension contributions to somehow produce an income of some kind at 60 or 65.  Some say you might as well have been taking the euro notes out of your pocket and just burned them every month.

 

 

7)    Start a family contingency fund.  Everyone should throw their spare change into a jar every night; earners should set up direct debits into which they put €10, €20, €50, €100 – whatever sounds practicable – into an account that is there to pay for emergencies:  car trouble, burst pipes, illnesses, even redundancy.  For those of us still in work, it can be the small things that can still push you over the financial abyss.

 

8)    Keep shopping around. And then shop around some more.  Your customers and doing it, and so should you.  With the government now taking such a huge proportion of our personal and business earnings between higher income tax, PRSI, VAT, road taxes, local authority charges, health levies and cutsbacks in services, you have little choice this year but to treat every euro as if it could be your last one.  Remind your children of this too.

 

 

9)    Never sign a financial contract you don’t understand, especially new investment ones. Make 2010 the year you take back control of your personal finance from the so called professionals who have lost so much of it last year on your behalf – the bankers and investment managers.  If you can, take an investment course (check out www.investRcentre.ie) and open your own low-cost trading account – see www.tdwaterhouse.ie - the new on-line trading facility from the Toronto Dominion Bank.

 

10)Finally, aim for 2010 to be the year that money wasn’t the all-engrossing, overwhelming issue that it seems to have become in this country. 

 

 

Easier said than done, you may be thinking.   But you’ll only know for sure if you give it your best shot.

 

 

 

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NEW YEAR RESOLUTIONS – FOR THE FINANCIAL REGULATOR

 

I gave up on the idea of New Year’s Resolutions for myself a long time ago. The size of the list was so daunting – 1) Drop two dress sizes;  2) Buy fewer shoes (shoes being weight neutral, you understand); 3) Win the lotto -  you get the idea.

 

However, that doesn’t mean that I don’t think New Year’s Resolutions are not a good thing…for other people.

 

And I know just the person who could use a nice, tidy list of resolutions for the start of the new decade as he takes up his new job as the as the head of the Financial Services Authority, Matthew Elderfield.

 

Mr Elderfield, who, for some reason that eludes me as I watch the rain cascading down my window and forming a small pond on the street outside, decided to trade up his job as the head of the Bermuda Monetary Authority for the role of Head of Financial Supervision at the newly integrated Central Bank of Ireland.  He clearly relishes a challenge …in a country with two seasons and one climate, Spring, Autumn and wet.

 

Whatever about having to supervise the rebuilding of the prudential side of the Irish banks, which will be no mean task given the presence of NAMA and the severity of the economic downturn, Dublin’s reputation as a financial services centre hasn’t exactly emerged from the turmoil of the past year with a sterling reputation either. 

 

I just hope he doesn’t end up so overwhelmed by these issues that he overlooks ordinary, end users of financial services, who are none too happy either.  They – we - are the ones who will be saddled with NAMA debt and many of us now look upon our mattress as more than just something to help us secure a good night’s sleep: for some it’s become an alternative deposit account, a safe deposit box, so to speak, that was only provided by the so-called ‘professionals’ in the banks, stock broking firms and life and pension’s companies in whose trust we once left all our money.

 

 

So here are a few You & Your Money 2010 Resolutions, Mr Elderfield, to mull over and to add to your own list this January. I’ve kept it pretty short to keep down the discouragement factor:

 

Resolution 1.)  Ban commission payments. At the heart of every rip-off of every consumer of financial services products, whether it be a savings plan for a child’s education; a useless payment protection policy (the kind that doesn’t always pay out when you lose your job); an unsuitable pension or even a low cost mortgage that ends up costing a king’s ransom…is a non-transparent commission.  Get rid of them. 

 

No one has been spared the scourge of commission:  your own Financial Ombudsman’s reports are full of elderly people whose life savings were targeted by so-called ‘qualified’ financial advisors at their banks who convinced them to gamble it on short term stock market funds and tens of thousands of young and foolish first time mortgage buyers who were signed up by banks and brokers for 100%, interest-only 35 year loans that carried obscene commissions.

 

And when you get the inevitable feedback from the industry about how nobody in Ireland is willing to pony up for a genuine fee based on expertise and time, (unless of course the service involves legal, accounting, tax or medical advice), just mention how your old colleagues at the Financial Regulator’s office in London have already set in motion the phasing out of commission remuneration for independent advisors by the end of 2012. 

 

Resolution 2)  No more mister nice guy.  When widespread mis-selling of a financial product is unearthed – and they will be – the culprits at the top of the company who are ultimately responsible for the actions of their juniors should be brought in, sat down, and told the consequences of their firm’s misbehaviour. Chances are much of the problem will involve older people being sold high risk stock market funds, and other unsophisticated “investors” who really should be leaving their few quid in the post office. I have an old file somewhere here on my computer of cases of Irish financial services companies operating in the UK who were fined and had their entire sales-force pulled out of action by the FSA (your old colleagues) and re-trained.  It hasn’t happened here, but should have.

 

 

Resolution 3) Name and shame the worst transgressors of the FR legislation and codes of practise.  Ireland is a small place (even smaller than Bermuda in some ways.).  Everyone and his dog knew who was involved in the famous Davy Stockbrokers/Enfield Credit Union case last year even before it came out in the Courts or in the Financial Ombudsman’s reports. When large sums are involved and the same kind of transgression keeps coming up, the bad guys should be named and shamed.  (Not that it might make much difference given what the banks in particular have gotten up to.)

 

Resolution 4.)  Stop the deposit takers from ripping off elderly customers. It really, really bothers me to still hear how many people leave large sums of money in bog standard ‘inertia’ deposit accounts that pay a pittance percentage of one percent in interest even while their institution offers higher return products.  Again, older people are more likely to be directed into these lousy interest accounts.  It doesn’t happen in the UK where banks are required to alert their customers to better paying accounts, but the banks here were able to convince the legislators not to include this in the FR’s remit when it was set up (surprise, surprise. Get it amended.

 

Resolution 5.)  Take on the credit card companies.  Not only are their surcharges and penalties outrageous, and the way that interest is calculated both opaque and usurious, but they continue to present their terms and conditions in little booklets full of small print written in outrageous technical and legal jargon.  Before anyone should be allowed to sign a credit card application form they must also acknowledge that they have read a single page of terms and conditions, the most important ones being “That you risk paying X amount if you miss a payment or exceed your borrowing limit;  “That you will pay X interest on all cash withdrawals compared to X interest for purchases” and “That if you do not clear your credit card balance every month, the compounding of interest on the balance and further purchases may result in damage to your financial wealth.” 

 

Or words to that effect.

 

Five resolutions are about as many as you should probably consider for this year, but I’d like to add another, though it’s not as important as it was a couple years ago.

 

If you check your advertising budget you’ll see that the Financial Regulator spends a small fortune warning punters against unauthorised boiler room operators based in near and far locations who cold call them with offers of shares or other investments that they swear will make them rich.

 

Anyone I’ve ever met (and I’ve been cold-called myself just hangs up.  Nevertheless, ads appear in all the newspapers quite frequently warning of this danger to our wealth.  Meanwhile, for about four years up to 2008, there was a stream of property shysters flying into Dublin and Cork and Galway every weekend flogging foreign properties from Bucharest to Bangalore via Dubai and Dallas.  Even snowy, remote Newfoundland holiday homes were on display to guileless Irish investors.

 

In the (unlikely) event that another property bubble is inflated, perhaps you could see that this last Resolution is enacted:  Thou shalt not attempt to sell overseas property in Ireland, and take away cash deposits, unless you are properly vetted and licensed by the Financial Regulator.

 

Amen.

 

 

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