🔒 WORLDVIEW: Momentum CEO mea culpa 30 years too late, far too little.

We live in a new era of disruption. My theory is that the seismic shifts in everything from politics to education is directly attributable to the Internet. Never under-estimate the intelligence of an informed human being – and because of the web, there’s more information available than ever before.

Often overlooked is the challenge this presents to long-established companies. Especially as the world starts to see the result of business models which focused on short-term profit, often to the detriment of customers. The destructive impact of such a legacy has on the brand is hard to quantify. But it requires a lot more than the company simply distancing itself with its own past.

My Biznews colleague Jackie Cameron highlights this in another very personal experience. For very good reason, her university professor husband, isn’t exactly a fan of the South African life assurance industry.
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Jackie Cameron opens today’s contribution with a question: “Would you invest a chunk of your hard-earned savings every year for 30 years if you knew that you would lose money?

This week, my husband found himself reeling in disbelief as a payout of just over R19 000 from Momentum hit his bank account – a few hundred rands less than the total amount put into an endowment policy over three decades. “If I had kept that money under my bed, it would be worth about R20 000,” he remarked.

At the time he signed up, a Johannesburg financial intermediary convinced him that he would one day get a “substantial sum” in exchange for sacrificing a portion of his earnings each year.

The bank required life insurance on his first property investment, so the advisor suggested a “home loan protection endowment”. This included R75,000 to cover the mortgage and the sweetener of saving into an investment at the same time.

The annual R670 was a lot of money in the mid-1990s for a young man at an early stage in his career. It was a ‘smoothed bonus’ fund, which means “Momentum has discretion to decide on the investment strategy, smoothing and bonus policies” for the fund.

Although it wasn’t a growth fund, there was an expectation there would be some return, partly because the provider has provided estimates on its statements of returns of around 4%, a minimum, and a 10% maximum. Besides, even money in a bank account generates a percent or two.

Momentum doesn’t estimate how compound negative returns can impact on policies – which is what happened. After 30 years of trying, it seems Momentum was unable to ‘smooth’ the return into positive percentage terrain.

A quick calculation (moneychimp.com) shows that R670 invested annually at the “illustrative” 4% interest should yield about R40,000, which is the minimum growth Momentum waves in front of its clients’ noses in its annual statement. At 10%, my husband would have received about R132,000 this week. Instead he got roughly 15% of the maximum illustrative gross maturity value and less than half the minimum.

“Someone made anything from R20,000 to R100,000 on a policy called Sure Profits. Sure Profits for them maybe,” he reflects.

My husband knows there’s no recourse. There are never guarantees of returns and the life assurance industry – not only Momentum – has savers tied up in opaque, complex legal agreements.

But he is disgusted all the same. “The actuaries decided, through their smooth bonus decisions over the years, that I wouldn’t get any return on my investment and that I wouldn’t even get my money back.”

In the annual report Nicolaas Kruger, CEO of MMI Holdings (a merger between Metropolitan and Momentum), indicates he is aware of the sorry situation of long-standing clients. “However the implementation of our client-centricity strategy is advancing well and we continue to focus on enhancing the lifetime financial wellness of our clients,” he says.

For my husband and no doubt countless others in investments that lock you in for the long term, Kruger’s focus on clients’ financial wellbeing is a case of too little, too late. Meanwhile, watching a life company investment go full circle serves a painful lesson that savers are vulnerable in the hands of invisible actuaries and others who have scope to play their own games with our hard-earned cash. It’s also a reminder to look beyond the formal investment sector for genuine wealth-building opportunities.”

Momentum appears to be seeking its salvation through signing up high profile sports sponsorships, trying to engender goodwill with a new generation while ignoring a very real old one that is festering. It is by no means the only company following this misguided approach. A pal in financial services who shakes his head at these “dinosaurs who see the meteor approaching, but keep on chewing the grass.”