Thursday, January 28, 2010

(No.76) The financial services accountability deficit, Fox News & other emails to RickardsRead

I receive emails in response to my columns on various subjects including financial services and business issues generally. Some of my correspondents are known to me, some are not. To date I have published several columns of excerpts from selected emails (see column nos. 63,64,65 & 74 in ).

In the column below I have selected excerpts from emails sent in response to my columns. For reasons of privacy I have (except where noted) withheld the writers' identities. However in order to provide some context for the views expressed I have preceded each email with a brief reference to the writer's role or business connections.

Words within square [brackets] and italics are mine.


The accountability and moral deficits in financial services
re column No.75 "Financial services deficits: a screed -- Part 1"

1. from a financial planner employed in the financial services business:

WONDERFUL. And it will fall, unfortunately, on ears that are incapable of making any connection between themselves and the problem. Just as 'might makes right' was used in other contexts, 'profit makes right' seems to govern corporate boards and those who serve them and more particularly 'year-end profits make right'. Especially for stock options.

2. from a former senior executive in a Canadian stock life insurance company:

No. 75 dead on!! Congratulations.

3. from a lawyer involved with financial services:

Absolutely loved this one and I am passing on to one of my [clients] most interested in ethics. She will love your read.

4. from a former life insurance industry executive:

I look forward to Part 2 (3, 4 ?). It is remarkable how the well intended publishing of executive incomes has in part led to an escalation of executive income based on the notion of not losing the execs to competitors over income. In other words the collective Boards [of directors] are now being compared to the actions of the weakest and least effective Board and the income/incentive program they were willing to put in place.

It seems to me that we have an ongoing escalation of exec incomes tied to everyone wanting to be at least at the mean and the few who have a 'pay top quartile' philosophy.

5. from an executive with a life insurance company in Canada:

Further to your blog ... [No.75] ... let's take a guy like [industry executive, name deleted] who was an absolute failure ... and put him in charge [of people who] had zero respect for him.

6. from an experienced financial services executive:

I can't wait for Part 2!!!!

7. from a person of long experience in life insurance agency management:

I have enjoyed all of your articles and see the zeal has not left.

Fox News pro and con
re column no. 66 "Wankers, wingnuts & Fox News"

1. from a Canadian, another person with long experience in life insurance agency management:

Sorry, I'm a Fox fan and believe they are on the mark more often than not. I also disagree with your views on medicare. Free enterprise rocks and the free-er the better.

No politicians have been stellar for a long time. Despite his faults Ronald Reagan was likely the best in my lifetime (and that is the best of a bad lot) but Obama is also the worst of that same lot, and a truly dangerous man.

2. from a Canadian businessman not in financial services:

Thanks for the well-written critique of Fox. I can't stomach watching Fox when I surf across it when visiting the U.S. I find the politics and screwed-up thinking of about 50% of the population in the U.S. very scary.

3. from a retired executive:

Thanks for introducing me to "plinth" and "codswallop".

The author of The Little Book
re column No. 67 "Freud, Buddy Holly & 1897 Vienna"

from Selden Edwards, author of the novel The Little Book:

I read this morning your delightful review of THE LITTLE BOOK. Thank you so much for taking the time to write about it, and in such an interesting way. It is difficult to figure out how much references like yours impact the "word of mouth" phenomenon in the book world but it is fun and heartening to see them. Yours is one of the best. I loved reading your take on my book and your involvement with fin de siecle Vienna.


Alastair Rickard


Wednesday, January 20, 2010

(No.75) Financial services deficits: a screed -- Part 1

It has been a bit more than a year since I began That followed my departure from the life insurance business as a salaried executive, a career I had begun with the Mutual Life of Canada and ended as an executive in the Canadian operation of Sun Life. Along the way I had also founded and for some years edited The Canadian Journal of Life Insurance. It was a spare time avocation and a quixotic attempt to contribute to the life insurance industry's mental health.

My years spent as an executive, industry analyst, editor and commentator, interviewer, public speaker, industry association committee chair [CLHIA] and board chair [FPSC] gave me a useful perspective on the financial services business. These roles also provided me with good sightlines on various members of the industry's senior management groups as well as financial services market and rating analysts and media people, the clan I have dubbed the financial services paparazzi.

One of the considerable satisfactions of my business career has been my association with people of quality, men and women whose integrity allowed for no gap between their personal and business ethics. This being the real world I also encountered too many of the other sort, the kind who sailed though life untroubled by the ethical gulf between their personal and business lives.

It was the greed, incompetence and lack of standards of supposedly responsible executives that in large measure caused the financial services conflagration centered in but not limited to the United States. It was a financial fiasco the so-called external experts failed almost entirely to anticipate or even analyze usefully as the causes that made the meltdown inevitable became increasingly evident (e.g., the lunatic expansion of subprime mortgages and related 'packaged' securities).

The recent financial scandals have illustrated a number of unpleasant things for the North American public. Among others -- that widely held public companies, supposedly so responsive to the interests of shareholders are often seriously deficient in accountability and in ways one could hardly imagine in companies like Mutual Life of Canada or Northwestern Mutual. [Some of us well remember, in years past, the aspersions cast and snotty comments made by shareholder company CEOs about the mutual form of organization.]

Indeed the 2008 meltdown of Wall Street financial services firms ought to have shown even the most simplistic among 'free market' cheer leaders that large firms can be and often are led by senior executives whose performance and judgement are seriously deficient, a fault compounded if they are also responsible to boards of directors who are -- at least in the majority -- not only ignorant of the reality of the business the company on whose board they sit is actually in but are incapable of judging and penalizing problematic executive performance and inferior company results ( nor is there any dearth of Canadian examples in insurance and banking).

Over the years my observation of the actual management skills (as distinct from career management 'political' skill) of many members of senior management 'teams' left me not only unimpressed but ultimately unsurprised by the extent to which the causes of the recent financial meltdown can be laid at the door of deficient executive leadership, sophomoric political and business opinions as well as senior management decision-making guided by financial self-interest.

Watching senior management in the financial services industry from a proximate position and equipped with non-public sources of information led me to subscribe to the opinion of the 19th century German Chancellor Otto von Bismarck who concluded in a different context but one applicable to the direction of today's financial services business: " Laws are like sausages. It's better not to see them being made." Certainly over the years I have seen ingredients well past their 'best before' dates being used in too many business sausages.

To add insult to public injury we now hear pathetic defenses of grossly inflated compensation paid to crews of senior executives whose own greed and incompetence helped produce the financial services meltdown. The rationale advanced for resuming the screwing of shareholders and taxpayers alike is that obscene levels of income must be paid to senior executives because they will otherwise leave the companies causing loss of their valuable talents.

It ought to be obvious, even to those executives with IQs dangerously close to room temperature, that the value of such talents (except in the opinion of those actually receiving the inflated compensation) is often more than dubious. Indeed, any sentient person who has been close enough to observe 'sausage making' in financial services companies will have long since wondered what superiority of leadership and vision is required, for example, to hire consultants to deliver commissioned window dressing for fixed policy intentions or to create camouflage under which a senior executive may later shelter from negative results? Or, for that matter, to habitually take credit for the work of others more talented but less politically adept?

What incentive should be on offer to retain the services (for example) of those at AIG who gambled with company funds, treasure which ultimately had to be replaced by $80+ billion of taxpayer money?

Apparently, if one believes the most senior survivors of the 2008 Wall Street Titanic, the answer is that it needs to be incentive as grand as the unreduced compensation of financial services company CEOs whose poor decisions managed to lose billions. And the beauty of it all for these corporate underachievers? To bring off lovely levels of incentive one need only have a board of directors compliant enough to award such largesse to CEOs, even though in some cases it is evident the corporate ship has already struck a financial iceberg.

So large is the accountability deficit in U.S. financial services leadership that the large Wall Street banks are now demonstrating, as my grandmother used to say, more nerve than a canal horse by lobbying against the passage of the Obama administration's relatively modest financial regulatory reform aimed at trying to prevent the recurrence of the economic near-death experience they precipitated.

Bismarck had it right. So does Nobel prize-winning economist Joseph Stiglitz when he argues that the recent financial services fiasco arose not only from an accountability deficit but also from an underlying moral deficit.

[to be continued]

Alastair Rickard


Thursday, January 14, 2010

(No.74) Banks, insurance & other emails to RickardsRead

Since the inception of RickardsRead a bit more than a year ago a number of columns have offered my comments on aspects of business generally, financial services and insurance particularly.

I receive emails in response to my columns from people in or associated with the financial services business. Some are known to me, some are not. I published 2 columns of excerpts from selected emails from insurance people previously (see column Nos. 63 & 64 in

In the column below I have selected excerpts from still more emails to sent in response to various opinion columns. For reasons of privacy I have withheld the writers' identities. However in order to provide context for the views expressed I have preceded each email excerpt with a brief reference to the writer's role or industry connection.

Words within square [brackets] and italics are mine.


1. Lapse-supported Term to 100 policies & Mutual Life

from a very senior life insurance company executive in Canada:

I just read your recent blog on T-100 ( No. 71 "Betting against your clients") and the closely related issue of companies' interests vs policyholders' interests. I agree with your points.

I believe that the principle of alignment of the interests of stakeholders (which is how I articulate the principle) is extremely important. With respect to individual insurance the primary stakeholders are of course the policyholder, the advisor and the company. If the interests of these parties are not aligned that is a recipe for problems. Of course, and somewhat unfortunately with respect to life insurance, these problems may not materialize for many years and accountability for their creation is rarely directly with those who created them.

Going back to the time when T-100 was developed I think there were both philosophical and practical considerations in the decision [by the Mutual Life of Canada] not to follow the crowd [and sell T-100]. Certainly there was the recognition that the company's [very low] lapse rates would not lead to profitable and competitive products.

However I also believe that risk was a consideration (i.e., a recognition of the risk of lower lapse rates than expected by industry pricing and the consequences) but very importantly a philosophical recognition that it did not make sense to misalign interests [policyholders' & company's]. This was highlighted by the move [by Mutual Life in 1989] to level commissions which of course had the opposite effect of better aligning interests for all parties.

2. Betting against your clients: an American perspective

from an American with long experience with the life insurance business:

Good article (No.71 "Betting against your clients"). The purpose of Nonforfeiture Laws is to make sure that the policyholder receives an equitable part of the asset share backing the policy upon surrender. There are good reasons why an insured might not be given the entire asset share but company profitability is not one of them.

Lapse-supported profits (beyond a reasonable contribution to surplus that every policy should make) are inconsistent with the spirit of Nonforfeiture Laws and should not be permitted.

Unfortunately it is difficult to regulate fairness and in this area anything but the crudest measure of fairness really depends on the ethics of the insurer.

3. T-100 & the secondary market

from an Ontario MGA:

Fantastic article [ No.71 "Betting against your clients"].

What's your position on a secondary market for cashless insurance policies?

Why should a client only have one choice of buyer for his policy when he no longer wants it?

I was once threatened for advising a charity to transfer its T-100 policies to another charity when it could no longer fund the premium obligations.

4. Not lapsing T-100 policies

from a leading Canadian professional financial planner:

Thank heaven ... you called it exactly on target [No.71 "Betting against your clients"]. I only hope you have lots of blog readers or that your messages are passed on to many others.

One of the things I learned at CALU [Conference for Advanced Life Underwriting] was that there was a cottage industry of sorts in pairing life annuities (with zero years guarantee) with T-100 policies to protect against lapse, as many brokers well understood that the pricing was slanted in the customer's favour -- in effect the smart brokers were making the policies virtually lapse-proof ( to their benefit clearly as well as to their clients').

Pairing one disadvantageous product with another to make something that was perhaps greater than the sum of its constituent parts. And virtually all of those are still on the books, except for those (of course) where the insured annuitant has since died.

While the companies may have intended to benefit themselves in the long run, to the medium-term detriment of clients and advisors -- although they would not look further than their own noses when assessing benefit and detriment -- it seems those clients and [life insurance] brokers are actually the ones who may benefit.

And I encountered [Mutual-Clarica agents] who, when seeing that their client had such a T-100 policy with company X, would tell their clients point-blank to NEVER cancel their policy as they would never get a sweeter deal.

And at least one company that did not offer a pure T-100 product did offer T-100 based premiums for its UL policies, mimicking a true T-100 policy. The main differences [were] that the client could always choose to add to that amount to fund it more permanently and the risk charge was waived after age 100. Even there the policies are frequently paired with a life-zero annuity, either to secure the premium payments into the future or to maximize after-tax cash flow by using insurance to replace the annuity purchase price. And so it continues. ...

It seems the corporate motto has been a variant of "might makes right", in this case "prospects of profits makes right". Now that mutual companies have mostly disappeared the life insurance industry seems to have lost clear sight of the customer ....

I know there will be a few key industry execs who read your blog AND take heed, and also that some of those will be south of the border. If you keep their feet to the fire, maybe there is hope for the [life insurance] industry yet.

5. Banks and insurance

from a retired Canadian insurance executive:

Greetings from Florida. I was recently introduced to RickardsRead so I shall be following your musings with interest.

I really enjoyed the one about the banks putting their foot in it [No.69 " Banks & insurance: shooting off another toe?".

I enjoyed [your Canadian Journal of Life Insurance] and I enjoy RickardsRead.

6. Banks & insurance: seizing the opportunity?

from a former life insurance company executive:

Thanks for the commentary [ No.69 "Banks & insurance ..."] and the suggestion to concerned communities to seize the opportunity.

7. Quebec -- banks & insurance

from a lawyer in Quebec:

Extremely interesting! [ No.69 "Banks & insurance ...."].

I would imagine the same principle would apply here regardless of the jurisprudential differences. In fact I would think that the Quebec courts would inspire themselves from these decisions.

8. the U.S. -- the fight there

from an industry person in the U.S:

Many thanks for this valuable insight into the federal-provincial tussle in Canada (No.69 "Banks & Insurance ...). Glad things are moving in the right direction and the courts are backing provincial regulation of agencies and crypto-agencies.

I'm sharing this with my good friend [name deleted] who is the [position deleted] for the [state name deleted] Insurance Department. I'm sure he will be glad to hear that things are going well north of the border.

The fight down here is deceptive and nasty. The Fed-lovers are using AIG as a weapon against state regulation when AIG's state-regulated companies are doing fine, thank you. It is the holding company, supposedly regulated by the Feds, that caused the problem. As my attorney friends say, if you don't have either the law or the facts on your side, malign your opponent.

9. Ontario -- what to do now?

from a lawyer working in the financial services industry:

[Ref. the the Ontario Superior Court decision cited in No. 69 "Banks & Insurance...]
Ontario won't know what or how to handle this now!

10. Call them agents not financial advisors

from a former chief compliance officer for a life insurance company in Canada:

I thought you might appreciate this true series of events that occurred during my tenure as chief compliance officer of [company name deleted].

I had prepared a series of market conduct policies that had been approved (some reluctantly) by senior management. One of them discouraged the use of the designation 'financial advisor' (and other derivatives) on business cards or other materials used by life insurance agents who were under contract with [my company], unless agents holding themselves out in this manner could back up its use with appropriate qualifications. At the head office level I vetoed any [company] attempt to address the field as 'financial advisors' in marketing and product materials.

You will recall that LUAC [Life Underwriters Association of Canada] was in the process of changing its name to CAIFA [ Canadian Association of Insurance & Financial Advisors, since changed again to Advocis - the Financial Advisors Association of Canada]. I was contacted by London Life who had heard of my stance on the use of 'financial advisor' and collectively we challenged LUAC on the revised CAIFA Code of Conduct where all of the wording that had previously referred to 'life insurance agent' or 'life underwriter' suddenly became 'financial advisor'. There was a series of definitions at the front, one of which was the definition of 'financial advisor': a financial advisor is a member of CAIFA.

A couple of months later I was called out of a meeting for an 'urgent' telephone call. It was from someone at LUAC who told me he was about to go into a board meeting and one of the agenda items was the finalization of the name change to CAIFA. He had heard about my position that disallowed 'financial advisor' to be used and challenged my right to do so.

I informed him that [company name deleted] had the right to formulate policy on how it wanted its agents to hold [themselves] out to the public. He asked why I was opposed to the term 'financial advisor'. I told him I could not support broad use of the term, especially since it meant that the newest agent on the block, having just picked up his life insurance agent's license from FSCO [Financial Services Commission of Ontario], could jump in his car, drive over to LUAC's(CAIFA's) office, join the Association and walk out calling himself a financial advisor.

The last time I was in the CLHIA website, and specifically the Compliance Section, I was dismayed to notice that they had a link for 'financial advisors'. Shame on you ....

Alastair Rickard


Tuesday, January 12, 2010

(No.73) RickardsRead ratings of Las Vegas shows

Pat and I have made several trips to Las Vegas within the past couple of years, the principal purpose of which has been seeing shows. We have no interest in gambling. The bigger hotels all have their own large theatres; virtually all hotels have showrooms and nightclubs.

Pat is a fan of Cirque du Soleil productions. Las Vegas has become the real home of Cirque shows -- 7 different shows are playing at present if one counts preview performances of the new "Viva Elvis" show still in previews. She appreciates the combination of Cirque features involving artistic athleticism and creative staging and production values including the music and elaborate costumes. What most interests me is the engineering and technology involved in mounting these Cirque shows, often in theatres custom built for them. My appreciation of the Cirque shows per se is less well developed than Pat's, partly because they do not feature much in the way of a 'story line' even the ones which claim to do so. However the nature of the Cirque shows in most cases means no story line as such is really required to enjoy the show.

We offer below our assessments of most of the shows we have seen in Vegas (all are still playing; they are long running, the standard pattern in Vegas). Our 'ratings' of each are what we present a 'personal enjoyment index' rather than an attempt to assign some sort of cultural ranking. They represent our respective evaluations (out of 10) of how much each of us enjoyed seeing each show. They are accompanied by certain factual information and notes.

All of the theatres we list below are in or adjacent to hotels located on Las Vegas Boulevard, the famous 'Strip', that stretch of high-priced real estate which is the area where most of the tourists on which Vegas depends focus their time, energy and money.

A tip on the buying of show tickets to Las Vegas shows: while tickets can be purchased on line or by telephone in advance of a trip we have found that visiting the hotel/theatre box offices can often produce discounts on the ticket prices if one asks specifically if any discounts are available. The volume of tourists coming to Vegas has dropped significantly and the hotels want to fill their theatres as well as their rooms (generally room rates have never been more of a bargain than currently).

Also: most of the Strip hotels today are owned by only 2 conglomerates with just a sprinkling of independents. Therefore one can often buy tickets to more than one show at a hotel theatre box office (e.g., at the Bellagio). Still a further advantage to actually going to a box office for tickets is being able to see, consider and get suggestions from staff involving which seats are good and the comparative value for this or that seat price or location.'s Las Vegas Show Enjoyment Ratings*
(* out of 10)

1. Show -- "Legends in Concert"
Hotel -- Harrah's
Ratings -- Pat: 6 Al: 5

This show has been playing in Vegas at one hotel or another for years. It features a varying cast of musical impersonators who do their own singing and playing. The version we saw featured 'tribute artists' backed by dancers doing musical impersonations of uneven quality, including (among others) Jerry Lee Lewis, Elvis Presley, Dolly Parton and Michael Jackson.

2. Show -- " Mystere "(Cirque du Soleil)
Hotel -- Treasure Island
Ratings -- Pat: 6.5 Al: 5

The first of the Cirque shows in Las Vegas. It is the one most closely related to Cirque du Soleil's circus roots. The most purely athletic, circus-like individual performances of the Cirque shows in Vegas. It lacks many of the qualities as well as the staging of other more spectacular Cirque shows.

3. Show -- "Jersey Boys"
Hotel -- Palazzo
Ratings -- Pat: 8 Al:6.5

This is the full broadway version of the show, not the abbreviated version of a Broadway production which tends to be appealing in Vegas because it allows a theatre to put on 2 shows per night. It is the story of the pop group Frankie Valli & the Four Seasons. The story incorporates effective renditions of 30 or so of the group's hits.

4. Show -- "Blue Man Group"
Hotel -- Venetian
Ratings -- Pat: 8 Al: 4

A very popular show, another production originating on Broadway in New York. It has been called "performance art" which I suppose is as good a name as any for 3 bald-looking performers done up in blue makeup who are mute but backed by a percussion-led musical group. It is funny and multi-media. After the show I hastily and unkindly described it as "Sesame Street" for adults but I was in a distinct minority. Pat's enjoyment of Blue Man Group was certainly representative of the audience's; mine was not.

5. Show -- "Fab Four"
Hotel -- Planet Hollywood
Ratings -- Pat: 8 Al: 8

This show is presented in a much smaller venue than the other theatres in our list but the show is full value for the money. It involves a 'tribute' band of Beatles impersonators whose singing and musicianship is amazingly accurate and well presented. All the music is played and sung on stage by the 4 performers -- no recordings. Their wigs do not transform them into close depictions of each of the Beatles but it really does not matter to enjoyment of the show.

6. Show -- "Viva Elvis" (Cirque du Soleil)
Hotel -- Aria
Ratings -- Pat: 5.5 Al: 5.5 (seen in preview)

This new show is meant to be an entertainment monument to help establish a high profile for the recently opened CityCenter complex on the Las Vegas 'Strip'. The Aria Hotel and its theatre are a major feature of the complex. The twice postponed formal opening of "Viva Elvis" -- now set for Feb. 19 -- is one indication of the creative problems encountered with this homage to Elvis Presley. We saw the show in a "preview" version which we expect will end up being revised. As I indicated in a lengthy column on (column No. 72 "Elvis: stumbling back to Vegas") the "Viva Elvis" show needs much work before it opens formally.

7. Show -- "The Lion King"
Hotel -- Mandalay Bay
Ratings -- Pat: 7 Al: 5

This is a full length version of the Broadway musical. In its music, colourfulness and spectacle the show shares much in common with some of the Cirque shows. The innovative costumes add materially to the spectacle. It appeals to a wide audience.

8. Show -- "Love" (Cirque du Soleil)
Hotel -- Mirage
Ratings -- Pat: 8.5 Al: 7

A spectacular production loosely tied to the lives and music of the Beatles. It uses multi-media very effectively and incorporates elaborate costumes, choreography and some of the hits of the boys from Liverpool.

9. Show -- Le Reve
Hotel -- Wynn
Ratings -- Pat: 6.5 Al: 6.5

This show should really be categorized as a Cirque du Soleil show except that it was created by a former Cirque chap who went out on his own. The show is performed entirely in or on water; it is a wet 'theatre in the round' presentation that calls on every Cirque-type effect one can think of and puts them one after another into a damp mix.

10. Show --"Phantom: The Las Vegas Spectacular"
Hotel -- Venetian
Ratings -- Pat: 8 Al: 7

This is a shortened version of Broadway's "Phantom of the Opera" adapted by its creators for a Las Vegas audience, i.e., all the songs but not all of the dialogue. Pat, who has seen Phantom several times elsewhere (and loves it) was a bit disappointed with the removal of too much dialogue/story to the detriment of the play's continuity. She still liked it in this version but the Vegas venue and staging also sacrificed the benefits of a larger stage to more pyrotechnics on a smaller one.

11. Show -- "Jubilee"
Hotel -- Bally's
Ratings -- Pat: 6.5 Al: 7.5

This is a musical show featuring a cast of 100 or so showgirls and variety acts. It is the last of the traditional Vegas shows of this sort, the kind that flourished during the Vegas years when the Strip hotels and casinos were run by the wise guys. Anyone who has seen the shows at the Lido and the Moulin Rouge in Paris will see how reminiscent "Jubilee" is of both.

12. Show -- "O" (Cirque du Soleil)
Hotel -- Bellagio
Ratings -- Pat: 9 Al: 8

Uses water on and as a stage extensively and impressively. The physical stage is transformed back and forth quickly and impressively from hard surface to water as the cast's performance space. The changing depth of the water on top of the stage allows for spectacular dives as well as for large objects (e.g., a piano with its pianist) to disappear beneath the water's surface.

13. Show -- "KA" (Cirque du Soleil)
Hotel -- MGM Grand
Ratings -- Pat: 9 Al 8

Supposedly a Cirque show with a linear story involving twins, each making a journey. This serves as background to various performers doing their thing on a stage that moves up and down and every which way -- a technical marvel. The show is a spectacle based on impressive technology. Pat describes it as a 'Star Wars' adventure set in new worlds.

14. Show -- "Bette Midler"
Hotel -- Caesar's Palace
Rating -- Pat: 7.5 Al 7.5

Caesar's Palace has a large theatre created for Celine Dion's long run. It has been occupied since by a revolving cast of headliners but mainly Bette Midler. The venue is large and impressive and her show "The Showgirl Must Go On" has lots of music and humour.


A final tip. As for any major trip, the best investment in a quality result is research in advance, an essential element of which is reference to solid guide books. The best, most candid guide to Las Vegas of several we have used is, without question, the annual edition of The Unofficial Guide to Las Vegas (Wiley, 2010) by Bob Sehlinger.

Alastair Rickard


Thursday, January 7, 2010

(No.72) Elvis: stumbling back to Las Vegas

Having just seen "Viva Elvis" I was interested to read recent media references to this new Cirque du Soleil show being mounted in Las Vegas at the new Aria Hotel theatre. It is located in the $9 billion CityCenter complex which just opened on Las Vegas Boulevard (aka 'the Strip') between the Bellagio and Monte Carlo hotels following completion delays caused by financing problems for this monument to excess.

Surprisingly, for a show whose performers began arriving in Las Vegas back in early August 2009, there are now in January 2010 still major problems with the "Viva Elvis" production (the 7th Cirque show in Las Vegas). This was apparently evident even in the special 18 minute preview staged for the media on Dec 18. This timing was reportedly at the insistence of the Aria Hotel/CityCenter folks who wanted the twice delayed show opened in mid-Dec. to coincide with and help draw attention to the high profile opening of the CityCenter complex itself. However the formal gala opening of the Elvis show is postponed (for the second time) and rescheduled to Feb. 19. One of the formal opening dates (now foregone) was to have been Jan 8 to mark the 75th anniversary of Presley's birth.

Like several of the larger Vegas strip hotels, the newly opened Aria has its own theatre, a large one seating 1800. It is an impressive venue but differs from the other Cirque purpose-built theaters in Vegas in being a traditional arch stage quite unlike either the thrust or the 360 degree performance spaces the Cirque performers use so effectively in "Mystere" ( the original Cirque Vegas show still playing at the Treasure Island Hotel), "O" (the bellagio), "Ka" (MGM Grand) and "Love" (the Beatles-themed show at the Mirage).

After Pat and I arrived in Vegas for a holiday visit we went to the Aria theatre and determined that the Elvis show was indeed being performed for the public contrary to some published reports we had read, seemingly corroborated by difficulty accessing the online booking system. The preview performances which had just begun were to continue over the holidays but followed by a two week return to rehearsals after Jan. 3. While the preview ticket prices were somewhat lower than the scheduled tariff after the official opening they were far from a bargain and there were none of the discounts available for admission to some of the longer running Cirque shows in Vegas.

The "Viva Elvis" show we saw ran for a bit longer than the usual Cirque show length of 90 minutes (this allows for 2 shows per evening). While Cirque successfully married its particular approach to the music of the Beatles in "Love", in doing so it still employed a full measure of its tried and true circus-type acrobatic and gymnastic elements. The Elvis show has thus far, through the various changes made to it up to the performance we watched after Christmas, remained a largely unsuccessful mix of occasional circus elements with Broadway style dance company production numbers, with all the elements sprinkled -- like raisins in a naval plum duff -- over the Elvis tunes, sometimes with pictures and film clips as stage background. Elvis' recorded hits played in the show have actually been diminished in their quality and in audience enjoyment by an annoying 'enhancement' of the originals with added instrumentation, all played at a volume so great that an audience member in the central orchestra section of the theatre is literally able to feel his seat vibrate.

The show's depiction of Presley's life is disjointed and often opaque. It presents continuous Elvis music, some of it sung in turn by one of three female vocalists, except for occasional monologues delivered by an actor portraying Presley's manager Colonel Tom Parker. He replaced an approach which apparently featured four characters who would narrate the story: Elvis' mother Gladys, his father Vernon plus a younger and older Elvis.

The Parker character, fairly well done in appearance and delivery, tries but largely fails to tie the show together, to give it some sort of narrative coherence. This is far from an easy task at which to succeed when the show's elements include, for example, male dancers dressed as cowboys prancing about with hobby horse heads on sticks and other 'cowboys' twirling ropes set afire. The challenge remained unmet.

The use of Colonel Parker as a narrator is understandable since the chronology of Presley's life presented in the show hops around and essentially ends with his marriage to Priscilla Beaulieu in 1968 -- to which is appended a show-ending number marking his arrival as a Las Vegas performer at the International Hotel (renamed the Las Vegas Hilton since 1971). For this dance production number the Cirque athletes and dancers (female as well as male) are dressed as Elvis. It should be noted however that "Viva Elvis" does not employ an actual Elvis impersonator; curious when one remembers that Vegas probably has more Elvis impersonators working as 'tribute' artists in venues large and small around Vegas than anywhere in the world.

The 'revised' version of the show we saw would doubtless satisfy the older diehard Elvis fans, the sort who cherish the thought of visiting Graceland and pretending to be 17 again. We had just such a couple sitting next to us who applauded almost continuously throughout the show, even yelling "encore" at the end of the show when the cast of 50+ were taking a final bow. However, judging by the somewhat tepid overall audience reaction to "Viva Elvis" in comparison with the reactions we have observed at other Cirque shows and if the Aria Hotel's theatre is to be filled twice nightly indefinitely it will perforce need to draw like the other Vegas Cirque shows on a wide audience. "Viva Elvis" still requires a great deal of work if it is to hit that objective.

A necessary focus of change to the show will involve for its creative team a need for clarification, indeed a decision about what sort of show is to be presented.

Is it to be the sort of presentation that fans of Cirque du Soleil have come to expect, one with unspoiled recordings of Elvis hits as background? Or will it be a broadway-style musical production about Elvis? Or will it be a musical tribute show to Elvis embracing aspects of his life tied to selected Top 20 hits?

Based on the show we saw, "Viva Elvis" is neither fish nor fowl. The expensive looking show interesting mainly as an unsuccessful attempt to pay homage to a rock and roll icon. It was a colourful theatrical stew -- substantial but ultimately unsatisfying.

Alastair Rickard


Friday, January 1, 2010

(No.71) Betting against your clients

When years ago many Canadian life insurance companies jumped eagerly into the market to sell something 'new' -- aggressively priced Term-to-100 policies based on lapse-supported pricing -- I was strongly critical in editorials in The Canadian Journal of life Insurance and in speeches to industry audiences.

I argued then and still believe that to sell those policies was ethically dubious for any life insurance company. The fact that it was legal did not justify the activity any more than a theoretical legality justified the greed and incompetence of the financial services CEOs who came close recently to creating a complete financial services meltdown -- and then sought to pay themselves bonuses while employees, shareholders and taxpayers suffered the negative financial consequences.

Term -to -100 policies were originally sold with great enthusiasm to Canadian consumers by many life companies as a form of lifetime life insurance protection and often represented to the buyer as being cheaper and more desirable than whole life (permanent) coverage. Yet the life insurance company issuing such policies knew -- indeed counted on -- the fundamental premise of the policy's pricing being that a significant proportion of those to whom T-100 was sold as coverage for their lifetimes would lapse their 'lifetime' protection or have it replaced by a sales intermediary. In terms of policy profitability for the company the more policyholders who lost their lifetime protection (and the sooner they lost it ) the better. It turned upside down the traditional shared interest of the company and its policyholders in their retention of their lifetime insurance coverage on the company's books.

Consider the reality of this equation: the life company issuing lapse-supported T-100 and its policyholders who bought the coverage no longer have a common goal, i.e., the retention of the policyholder's life insurance coverage. Rather the company is betting against its policyholders' interests; indeed their interests are diametrically opposed because the sooner the insured loses his or her lifetime insurance protection the better for the company whose policy pricing assumptions require such a result for many of their clients.

I was reminded of this Term-to-100 ethical conundrum (albeit one never publicly acknowledged by the Canadian life insurance industry) by the New York Times revelation (Dec 24,2009) that in the run up to the Wall Street meltdown Goldman Sachs among other financial firms had "created mortgage-related securities ... that were intended to make money for Goldman if the housing market collapsed. And just as planned, the firm pocketed huge profits when they did turn sour."

American financial regulators are now -- belatedly of course -- looking into the creation and peddling of these securities known as CDOs ( synthetic collateralized debt obligations). They are "looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them setting their clients up to lose billions of dollars if the housing market imploded ..." And it did.

In hindsight one might say that this was yet one more obscene manifestation of the greed and lack of ethics of so many in financial services leadership. And so it appears to be. However it is also for me strikingly reminiscent of the approach taken by too many of those responsible for life companies in Canada during the hustling to the public of the first generation of a Term-to-100 product which, at its core, was a bet against the client.

The early company enthusiasts for T-100 got it badly wrong and their pricing assumed lapse levels (especially those caused by policy replacement activity) that did not materialize. Indeed I was told by a federal insurance regulator that a number of brokerage companies which jumped into the T-100 competition with both corporate feet arrived at a point at which they would have been judged insolvent had Ottawa publicly required them to abruptly increase their reserves to match their liabilities based on their actual lapse experience with the T-100 business they had sold by the truckload, experience much lower than lapse rates assumed in the pricing assumptions on which their reserving was based. They were allowed by Ottawa to quietly increase their reserves over time to get onside thus avoiding scandal and financial disaster.

In fact, after it became fairly widely understood in the business that the pricing of the first generation of Term-to-100 was so wildly offbase in terms of assumed lapse rates, the best agents and brokers advised their clients (whether those clients had purchased their T-100 policies from them or not) to hold on to them; the cost of these policies was very favourable in comparison with Term-to-100 policies issued after the necessary upward repricing of T-100.

So anxious did some of the companies become to get alot of this first generation T-100 business off their books that (as I was told from the field) holders of some of the larger face amount but cash valueless T-100 policies were cautioned by their own life insurance advisors to diarize the annual premium payment so their policies would not lapse if they did not receive an annual premium notice from the issuing company -- in the obvious hope that the policy would be lapsed inadvertently by the policyholder. First generation T-100 policies became desirable because of the issuing companies' erroneous pricing assumptions; they still are. If you have one, treasure it.

The Mutual Life of Canada, after Term-to-100 hit the market, refused to issue T-100 policies. It was a source of pride for some of us who then worked for Mutual Life. I would like to believe that this refusal was a matter of principle -- and principle was certainly something which came up in internal discussion at the time.

In retrospect I think the reality was that the decision was as much or more because Mutual Life's superior exclusive career agency distribution system gave the company the industry's lowest lapse rate and highest agent retention rate. Therefore any pricing changes or new policy introduction tied to realistic lapse rate assumptions for Mutual Life would not have even begun to generate the basis for the sort of lapse-supported pricing common in that market segment. (Mutual Life accepted individual policy business only from its own agents, unlike Sun Life today which operates what was formerly the Mutual/Clarica career agency system but also an MGA brokerage arm as well as making certain of its policies available to "national accounts", i.e., other companies).

Whatever the T-100 decision-making process in each company in those days, when executives who felt uneasy about their companies selling the product sought some form of Balm of Gilead to apply to this ethical skin condition, they often -- as with much else -- invoked sales people as their excuse. As one executive in a company for which I had considerable regard (and still do) said to me: "We don't really want to be issuing issue Term-to-100 but the field wants it."

My answer was then and remains: don't blame agents/brokers for selling the products with which companies equip them. If the company does not want to sell a certain type of product, then don't issue it. The responsibility is the company's.

Alastair Rickard