New Zealand round up – 04/03/99

Inflationary pressures in the New Zealand economy could become evident within the next six months, according to Equitilink (NZ) chief Richard Flinn.

Flinn says the recent upturn in household mortgage borrowing in New Zealand, as identified by the latest Equitilink Savings Indicator, sounds a warning on the return of inflationary pressure.

The Equitilink Savings Indicator for the quarter to December 1998 shows the increase in household mortgage borrowing more than doubled to 2.8 per cent, compared with a 1.3 per cent increase for the September quarter. The indicator is based on Reserve Bank data.

Historical data suggest that persisting quarterly increases in household mortgage borrowing above three per cent, begins to ignite inflation, Flinn says.

The economy has just been through this destructive pattern yet again, despite the economic restructuring of the past two decades, and with the December quarter showing a sharp rise in both household mortgages and consumer debt, there are early warning signs that the pattern could be starting once more.

While both mortgage and consumer debt increased in the December quarter, Flinn says a decline in the rate of increase in bank savings was also recorded.

He says while it is expected a large amount of bank deposits are flowing to managed funds as low bank interest rates take hold, the increase in debt levels is worrying.

The latest WestpacTrust Household Savings Indicators confirm a significant increase of funds flow into managed savings vehicles for the December quarter.

The figures, compiled by FPG Research and the New Zealand Institute of Economic Research, show the most significant increase in New Zealanders' net worth came from a 5.7 per cent increase in financial assets other than traditional bank deposits.

After 28 months of 'hard slog' a new body representing New Zealand's financial planners and risk advisers has officially been created.

The Financial Planners and Investment Advisers Association (FPIAA) now unites the Association of Investment Advisers and Financial Planners (IAFP) and the Insurance and Investment Advisers Association (IIAA) in one organisation.

Head of the IIAA and now co-president of the FPIAA, David Milner, says members of both the IIAA and IAFP should have transferred their membership to the FPIAA by the beginning of April this year.

I'm very positive in thinking the majority of members will choose to belong to the FPIAA. The combined membership should range from about 1200 to 1400," Milner says.

He says fees for membership of the FPIAA will remain at last year's level for the year and future fee levels will be determined by FPIAA Council.

Milner and IAFP chair, Denys Wright, will continue as co-presidents of the FPIAA for a year succeeded by a single president the following year, Andrew Charles from the IIAA, who will in turn be replaced by Phillip Matthews (IAFP vice chairman) the year after.

A new vice-president will be elected in March 2000 who then takes up the president's role the following year.

FPIAA co-president, Denys Wright says both the IIAA and the IAFP will continue as organisations for another year before winding up.

He says the CFP licence will remain with the IAFP until the position of the Certificate of Life Underwriters (CLU) within the FPIAA has been regularised by the CLU authorities in the US.

"This has been the only concern of the CFP board but the CLU situation should be clarified sometime in March," Wright says.

Milner says the forging of closer links with the Investment Savings and Insurance Association (ISI) and a comprehensive review of educational requirements mark the first positive steps of the new organisation.

At the same time he says concerns expressed by the IIAA Northern Regional Council about the FPIAA constitution prior to the merger have been 'amicably resolved'.

"We're very pleased with this push in a new direction. After 28 months in the melting pot and often stressful and demanding times we're determined not to let our hard work slip away," Milner says.

However, Murray Weatherston from advisory firm Financial Focus, has slated the FPIAA as 'undemocratic' and says many members of both the IIAA and IAFP will not join the new group.

"I'm a member of the IIAA and I won't be joining the FPIAA. Membership of the FPIAA just can't be automatically transferred from the IIAA or the IAFP and many members won't fill out the new application form," says Weatherston.

He says too much power will reside in the FPIAA board with only two elected delegates from each region able to attend the new organisation's annual meetings.

"I also think the business rules of the new organisation are too tough, they're saying there's only one way to practice as a planner. It encourages financial planners and advisers to be nothing more than managed funds salesmen."

Tower Corporation should be ready to list on the New Zealand and Australian stock exchanges by August this year according to Tower chief, James Boonzaier.

The Guiness Peat Group (GPG) challenge to Tower's demutualisation plans, which Boonzaier estimates has slowed the process down by six months, was effectively ended last month following an Appeal Court decision rejecting GPG's claims.

"We're very pleased with the result, although it was not unexpected. The previous High Court judgment was robust and clear in its reasoning," Boonzaier says.

He says it is unlikely GPG will pursue the matter through the Privy Council.

GPG's plans to merge Tower with its Australian financial services subsidiary company, Tyndall, were dealt a final blow with the Royal and Sun Alliance Australia takeover bid for Tyndall.

Boonzaier says both parent and subsidiary members will get the chance to vote on the Tower demutualisation plan by the middle of May this year. Tower needs 75 per cent support for its plans from both classes of members.

"We're very confident members will support the demutualisation scheme. It's in the interest of members and in the interest of Tower," says Boonzaier.

Assuming members vote for the plan further approval from the High Court is required for Tower to demutualise.

"While the whole contesting process was unfortunate it wasn't all negative. It enabled us to put a lot of work into our demutualisation plans and make them more precise," Boonzaier says.

He says following a successful stockmarket float Tower will be able to expand quickly and take advantages of growth opportunities in Australia and to a lesser extent in New Zealand.