Shareholder’s agreement – Is it worth the paper it’s written on?
If you have more than one partner in your business, you’ll have a buy-and-sell agreement or clause in your MOI. Often that is the last time a shareholder will worry about it, consumed with the business of, well, running the business. Why the concern anyway? You trust your partner to honour the agreement right?
The single biggest concern is the potential lack of liquidity in the hands of the other partners so that they can pay the value of your shares to the estate. It isn’t that they don’t want to, it’s just that the bank might not lend the money when the company is ‘unstable’. A partner is unlikely to sell his house, or other major asset to hand over the cash to the estate. This can draw out the ‘winding up process’ to years, and potentially force the company into liquidation.
Meaty Filling or a mess?
Vilifying the middleman became a national pastime with the birth of the direct insurance industry, a hobby that seems to have quietened down somewhat recently, but the topic bears scrutiny – the mud has stuck. I like to think that one of the reasons this topic has quieted down is that the customer isn’t that gullible, and in response the massive advertising campaigns have switched to ‘service’ (excuse me while I choke on my coffee).
“We don’t charge commission!” Yay! So that means your premiums are going to be proportionately lower… Right? Nope. Well… maybe, I haven’t done enough comparative quote to put any kind of statistical certainty on it, but I haven’t found one apples-for-apples quote from a direct life insurer that can’t be beaten hands down by traditional insurers with full commission. It makes sense. They might not pay commission, but they have massive call centres to fund, prime time TV ads to run, print ads, events, sponsorships etc. That money has to come from somewhere – Yup… Your premium. It is merely a redistribution, not a saving.
Everywhere you go, every newspaper you open, is full of statistics, gently massaged to scare you, persuade you or change your mind. Throughout my career I have used statistics extensively, and it infuriates me when they are abused. The Financial Advisory industry is a major culprit – usually using subsets of carefully defined populations to make a disability sound have a higher chance of happening than is actually the case. There is only one absolutely sure statistic in the Life industry. We have a 100% chance of dying.
There are statistics that are really useful though, one of them is called Standard deviation. Long winded term, and not that easy to understand – but let me give it a bash…
Planning so that everyone understands
The FAIS act has put so many additional requirements onto Financial Advisors, (not without reason, I hasten to add), that the interaction can easy become a box ticking exercise. Most advisors have access to a canned product. You input all the numbers and it comes out with a pretty (and verbose) report, which very few people ever read. It’s little wonder that misunderstandings and failed expectations happen every day. Advisors are so poep scared of not having the paperwork ready for a trip to the FSB, that the real job of gaining an understanding of each person/family/company’s specific needs, identifying the areas of misunderstanding and building a relationship of trust go out of the window. This is even more acute as soon as investments are involved.
Dread Disease under the microscope
In risk cover there are some products that are ‘nice to have’ and a ‘want’ rather than a ‘need’ – is dread disease cover one of them?
The answer to this pokes into the murky pool of psychology and behavioural finance, but let’s rush in where financial advisors fear to tread. I was prompted to write this blog after one of my clients, who had ample risk cover, was contacted by the insurance provider call-centre and told that she ‘needed’ more, and with better benefits. I was less than impressed. Call centres mucking around with clients polices without a full needs analysis quite frankly borders on a breach of the FAIS act, but let me steer clear of that pet peeve for a minute.
Dread disease/critical illness cover – heart attack/stroke/cancer etc. – quite rightly strikes fear into most of our hearts. This is even more acute if someone in the family has suffered financially as a result of one of the nasties. The statistics are pretty horrific, with upwards of 20% chance of people being diagnosed with one of them during their working life. In retirement those odds increase every year.
Demystifying premium patterns in life policies
A premium pattern on a life product is illustrated by the graph of the increases in premium over the potential life of the product from inception. Creative use of premium patterns is one of the subtle ways that brokers or call centres will ‘persuade’ someone to switch their life policy to another provider. Even if your advisor has gone to pains to demonstrate the difference in premium patterns, that sort of detail is easily forgotten over time, and the prospect of saving several hundred rand a month can be very compelling.