Sunday, March 24, 2013

(No.234) US gun control, heath care bankruptcies & other interesting numbers

" U.S. gun control, health care bankruptcies and some other interesting numbers"

by Alastair Rickard

Another statistic for those who think President Obama's reforms (albeit incomplete) to the American health care system were needed and  will contribute over time to a significant upgrading of the system: a recent study showed that out of a sample of 2300+ bankruptcy filers in the U.S., 60% of them were caused at least in part by medical illness.


There is no shortage of statistics measuring global inequality. For example:
-- the top 0.5% of the world population owns 35.6% of global wealth while the bottom 68.4% own 4.2%;
-- the wealth of the world's 3 richest people is equal to the combined GDP of the 48 poorest countries;
-- the richest thousand billionaires are worth more than the 1 1/2 billion of the world's poorest people
[see Mathias Risse, "On Global Justice" (2012)]


With 760 members the British House of Lords is the second largest legislature in the world after the National People's Congress of China. The 'reform' by the Labour government in 1999 of the House of Lords did not, as many people mistakenly believe, remove all hereditary peers. It allowed 92 of the 759 hereditary peers to remain in the House of Lords along with the hundreds of appointed 'life peers'. The appointment of life peers by the government of the day reminds one of the process of appointment of Canadian senators.

The understanding was that this arrangement to retain some seats for hereditary peers  would remain in place until some future government implemented a second stage of House of Lords reform. The 92 peers are themselves allowed to replace from the pool of hereditary peers cast out in 1999 any one of their number (i.e., of the 92) in the event of their death. This strange election has happened 17 times since 1999: the candidates are aristocrats and the electors are aristocratic legislators.

Over 3 million non-Germans fought alongside Hitler's soldiers during World War II. In Operation Barbarossa, the German invasion of the Soviet Union in June 1941, they made up 25% of the troops. They were invaluable to the German army's war effort in holding and 'pacifying' areas behind the front lines. It has been argued that without them Hitler's armies would not have achieved the military successes they did. [see Rolf-Dieter Muller, "The Unknown Eastern Front: The Wehrmacht and Hitler's foreign soldiers" (2012) ].


The political debate rages on in the U.S. over the relatively modest gun control measures (e.g., universal background checks on purchasers of firearms) that the Obama administration would like to see legislated in the wake of the multiple mass shootings in the U.S. in the last few years.

Not much seems likely to improve given the power of the pro-gun lobby and the political spinelessness of a majority of U.S. legislators when it comes to advancing gun control measures in that country. Just recently Harry Reid, the U.S. Senate Democratic majority leader, has indicated that he will not even bring forward for a vote in the Senate a ban on assault rifles, the weapon of choice for mass murderers.

Canadians are accustomed to seeing comparisons of gun deaths in our own country with the massive numbers in the U.S. but here is a different one involving the U.K. where gun control is even stricter than in Canada:

in the United Kingdom in 2009 there were only 39 gun-related deaths while in the U.S. there were more than 9,000. So, the U.S. with 5 times as many people as the U.K. had more than 230 times the number of gun deaths.


Between 1840 and 1914 Ireland emptied itself of half its population. Perhaps a million died because of the so-called potato famine but most left Ireland to find a better life elsewhere. Although North America was the favourite destination (Canada as well as the U.S.) more than 300,000 Irish went to Australia. By 1914 Australia was the most ethnically Irish country in the world except for Ireland itself.


In the modern era there have been two British Prime Ministers who led the government after having been seriously wounded in wartime action:

(1) Clement Attlee, Labour PM from 1945-51, was an officer in World War I and was the second to last soldier evacuated from Gallipoli. He was later seriously wounded in the Mesopotamian Campaign.
(2) Harold Macmillan, Conservative PM from 1957-63, also an officer, was wounded 5 times while fighting on the Western Front; in 1916 , while on reconnaissance, he was nearly killed by a bullet to his pelvis. He survived by rolling into a shell hole in no-man's land where he kept his spirits up by scanning a copy of plays by the ancient Greek Aeschylus he had carried into battle in his pocket.

Three living male members of the British Royal Family have had active service in wartime:
(1) Prince Philip, Duke of Edinburgh as a Royal Navy officer in the Mediterranean and the Pacific during World War II, including the Battle of Crete;
(2) Prince Andrew, Duke of York, as a helicopter pilot during the Falklands War; and
(3) Prince Henry of Wales (Prince Harry) in Afghanistan, first as a forward air controller in Helmand Province and a second tour as a machine gunner and co-pilot in an Apache Helicopter.


As Canadian-born Conrad Black experienced after having been charged by federal government prosecutors in the U.S., the American justice system is seriously tilted in favour of the prosecution. Black was charged with 13 counts and ended up convicted of just one (and that highly dubious) after he had spent years and millions of dollars fighting the charges, a battle which included a trip all the way to the U.S. Supreme Court. He has been scathing in his comments about the American judicial system (see his account of the experience in his 2011 book "A Matter of Principle").

Those who think Black was too harsh in his comments about American justice should read the recently published "The Collapse of American Criminal Justice" by William J. Stuntz (Harvard University Press).

One learns, inter alia, that the core problem with the American system is the massive and unrestrained power of police and prosecutors. Over the past 40 years criminal law in the U.S. has become all-encompassing: there are now 40,000 federal criminal offences. Instead of restraining officials U.S. criminal law provides then with an extensive battery of weapons they can use as they see fit.

The vast majority of those charged give in to prosecutors' pressure by agreeing to a plea bargain and a lesser sentence (Black refused to do this); 95% of all felony convictions now result from a guilty plea. Most of the time the defendant has his or her fate decided not by a jury of peers but by powerful officials with virtually unchecked discretion.




previous columns/blog archive: to access previous columns on go to
the blog archive links which appear chronologically in the margin beside each column as
it appears on the RickardsRead website -- and use the links

to set up a "Google alert" in order to receive automatic notice of new columns as they are
posted on RickardsRead,com, go to:                                                                            


Monday, March 18, 2013

(No.233) Sun Life agents & CI mutual funds

"Sun Life agents respond (again) to comment in RickardsRead columns about Sun Life, CI Financial and the selling of mutual funds"

by Alastair Rickard

In several recent columns (Nos. 225, 230 & 231) I referred critically to the mutual funds sales relationship between many of Sun Life of Canada's career agents and CI Financial that has continued after the sale by Sun Life of its 37% ownership interest in CI.

I have received a number of comments from (mostly) Sun Life agents about CI, its mutual funds and Sun Life's attempt to gain more of the mutual fund business sold by its own agents for its mutual fund subsidiary Sun Life Global Investments (SLGI).

I have selected a number of comments which appear below. These begin with an exchange between a Sun Life agent who, in previous correspondence with this column, has been an active defender and proponent of CI and its ongoing relationship with many Sun agents.

I will add some further comments of mine at the conclusion of this column.


An exchange of views --

From a Sun Life agent:

"I've always scratched my head by your repeated use of the phrase "bargain-priced" when discussing CI's access to the Sun Life sales force. I find this quite pejorative.

"You know as well as I do that CI traded one third of its company in exchange for the assets of Clarica and Sun Life. It seems to me that from that day forward they were partners in the truest sense of the word. From 2002 to 2006 the Sun Life 'book of business' almost tripled in size.

"Over the years Sun Life reaped many hundreds of millions of dollars in [stock] dividends from the partnership and in 2008 they sold their investment for a gain of $1.5 billion. I fail to see how this is "bargain-priced". I think it could be argued that the deal was equally beneficial to both sides."

Reply from RickardsRead:

"I think you have missed the points I have made in several columns about the disproportionate value that CI derived from the trade and the corollary -- preferred acess to the Sun Life sales force.

"I know you understand that the mutual fund business is in its fundamentals about effective distribution and access to it by the fund companies. Trading for value and receiving dividends is one thing; refusing to contribute to sustaining the effectiveness of the agency system on which you have come to depend to a great extent is another.

" As is the reality for which CI is of course blameless -- that the ownership dividends flowing to Sun were even less effective than the Ronald Reagan myth about 'trickle down economics' was to the American middle class. ... relatively little of the money passing each year from CI to Sun 'trickled down' to the benefit of the agency distribution system per se."

Reply from the Sun agent to my reply:

" I don't know that I've missed your point as much as I respectfully disagree with it. I think it could be argued that CI has been a great supporter of the career sales force to which they have preferred access. I believe that helping to create and support successful advisors helps to sustain the effectiveness of the agency system.

"The products, training and service that has flowed from CI to Sun Life advisors over the past decade is light years ahead of what was provided prior to the marriage with CI.

"CI hired and trained wholesalers who were dedicated exclusively to the Sun Life [distribution] channel and spent hundreds of thousands of dollars on an annual "Wealth Symposium" reward trip for top qualfiers that was advertised as a Sun LIfe party (few advisors realize that CI paid 50% of the bill each and every year).

"They hosted professional development days and ... conference calls exclusively for Sun Life advisors. This allowed many of us, myself included, to grow our [mutual fund] business far beyond what we previously thought possible. In turn that likely allowed many of us to sell more life insurance products as a result, for which no benefit accrued to CI. I maintain that both companies benefitted immensely form the partnership. ... "


A rather different view from another longtime agent with Mutual/Clarica/Sun on the topic of CI and Sun Life:

"I have to say that I have mixed emotions on this. I started my mutual fund career [with Mutual Life/Clarica Life] .... The client was the winner. Along came CI (the sale of Sun's funds wasn't the brightest thing Sun has done) and everything changed. We reverted to the [lower] industry standards, ... and of course way more paperwork. However I give credit to CI  for seizing the opportunity and selling us advisors. Having good product also helped.

"I became a reluctant convert and over the years have felt pretty good about the relationship, the service and the [CI] funds performance. However I am now changing. From my perspective CI has targeted  advisors who they see as loyal and have sufficient blocks of business. To these advisors they are providing lots of TLC. I believe they are expecting the worst and are managing to mitigate damage.

"My block is modest [amount in millions of $s deleted] and I can see a definite change in my CI rep. I am not on his radar. Low response times, no acknowledgement of larger tickets, no nothing. I have become invisible. So mixed emotions.

"Struggle with the lack of systems with SLGI where they are definitely paying attention to the average advisor or stay with CI and be invisible? I suspect my clients will determine where I put my loyalty, ...  Sun's intentions for me notwithstanding.

"So I hope that Sun does improve their systems. I like and think that their global approach to providing top notch management companies should be a benefit to my clients. Here's hoping they get the whole thing right. There is just too much money out there for the company to mess this up."


Excerpts from two of the views received from Sun Life agents:

Ref. RickardsRead No. 230, "Sun Life and CI Financial: it could get messy
"Great overview. We are seeing obvious signs of antagonism right now. The golf analogy is perfect. They [CI] are a first class organization offering top of the line product with over the top service. That's all you need. Us [SGLI] on the other hand, have service levels that are intolerable. Awful."

"It has been my experience that I have had nothing but respect from the CI wholesaler, including nothing but respect for the SLGI fund company. I know that CI Investments is not a perfect company but they have provided training, support and products that provide my clients with the tools they need at every stage of life."

From a person involved with the training and licensing of life insurance agents:

"I guess, because I always see the CI/Sun relationship on the ground floor (the CI guys interact with the Sun agents in a manner not much different from how the Sun managers do), I didn't see the lack of value that you -- correctly -- indicate for Sun.

" I don't think it is fair to say that CI contributed nothing extra. I think their contribution is not proportionate to the value of the business that comes from Sun [agents] but CI does seem to put a fair bit of resources into training the Sun guys, educating them and so forth.

" I do understand that Sun gave away the farm on this. I guess it doesn't seem like a bad deal when you own a third of the company but now it does seem foolish from a shareholder perspective."


A concluding comment from RickardsRead:

I have never criticized or 'blamed' Sun Life agents for loyalty to and fondness of CI which, having been given by Sun management de facto free rein to promote mutual fund sales with Sun agents, earned that loyalty and did so very effectively. It is up to Sun Life to manage its affairs more effectively.

It can be argued -- and has -- that the value equation for Sun, from trading to CI its mutual fund business as well as the larger business of Mutual/Clarica, came in the form of the (ultimately) 37% ownership interest in CI. (As a matter of idle speculation I would love to have seen what the combined Sun and Mutual mutual fund businesses coupled with effective proprietary distribution would have been worth a decade down the road).

In any case the trading of the mutual fund operations for an ownership interest in CI did not, by any sensible thinking, also require Sun to top up the tank for CI with preferred access to the country's largest and best career agency distribution system -- at least not without requiring ongoing specific CI contributions to the enhancement of the Sun Life agency system it was so anxious to access. But that is not what Sun management agreed with CI.

Once Sun Life sold its ownership interest in CI to the Bank of Nova Scotia the value CI derived from its favoured status vis-a-vis Sun Life's proprietary career agency system exceeded by any reasonable measure what Sun (minus its ownership dividends) derived from it  -- hence my reference to 'bargain access' for CI.

CI has indeed spent money on its cultivation of sales relationships with many Sun Life agents. But what CI spent in pursuit of ever more mutual fund business for itself from Sun agents was hardly a meaningful part of the value equation for Sun Life. This was and is especially true in light of the fact -- contrary to the suggestion by one of my correspondents -- that CI's very effective promotion of mutual fund sales activity by many Sun Life agents did indeed cost Sun Life an untold volume of foregone individual life insurance sales (harder sales to make than mutual funds) which it would otherwise have received over the years from this generally longer experienced group of CI-oriented Sun agents.

I do not think that the distribution relationship between  CI and Sun will be terminated when the current agreement expires. But in the interests of Sun Life, as the owner of one of the best distribution systems in Canadian financial services, the agreement with CI certainly needs to be renegotiated -- and rather more aggressively by Sun than previously.

Sun's mutual fund arm, SLGI, will have to work harder at earning more business from Sun Life career agents and I suspect it will be doing so in future based on something that looks more like a level playing field than it does currently.

Finally, the Sun Life/CI arrangement and related issues involving Sun Life's career agents is an illustration writ large of an important life insurance industry reality: the interests of a life insurance company and the members of its agency distribution system overlap but they are far from the same.




previous columns/blog archive: to access previous columns on
go the blog archive links which appear chronologically in the margin beside each
column as it appears on the RickardsRead website -- and use the links

to set a 'Google alert' in order to receive automatic notice of new columns as they are posted on
Rickards, go to: