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No Holds Barred (First of Two Parts)

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Miguel Vazquez

Pre-need honcho Miguel Vazquez lays his cards on the table and explains to the China Business editorial team what could be done to fix the pre-need mess

“We face our clients, hold their hands, and say ‘This is the situation.’

Philippine Federation of Pre-need Plan Companies Inc. president Juan Miguel Vazquez believes telling investors the whole truth about their money will not only help clear the issues surrounding the pre-need controversy, but also help them come to an informed decision about what to do next.

While investigations in the Senate continue as this issue goes to press, Vazquez goes to the root of the problem and describes what could be done to help ailing companies and restore public confidence in the pre-need industry. What awaits anxious plan holders? Is there hope for the Philippine pre-need industry? The federation president reveals what he knows in this interview with China Business-Philippines.

China Business: How does the federation help out member companies in times of trouble?
Vazquez: The federation’s role is not really to be like a PDIC or anything like that among the members. The federation’s role is to work with our regulators and our legislators to come up with the best rules and laws to govern our industry for the benefit of the industry itself and our plan holders. That’s our number one role. We are not a lobbying group.

Second is to share the best practices among ourselves.

Could you give us an estimate of the pre-need industry’s contribution to the national coffers?
We pool savings. And these savings are reinvested in long-term capital funds. I was just looking at the 2006 data. Our trust fund is about 95 billion pesos (US$2.06 billion) or 96 billion pesos (US$2.08 billion). Of that amount, around 63 billion pesos (US$1.36 billion) are lent to the national government. We invested in T-bills; the rest in the Philippine Stock Exchange. Around 7% is in real estate and about 5% in mutual funds.

Aren’t you exposed to infrastructure projects like the MRT3?
One pre-need company, obviously we all know about it, invested in that.* A lot of criticisms were made because they were saying that they invested too much in real estate or in their own projects. The SEC has put in a lot of rules that won’t allow that to happen again. I’m not saying that’s a good or bad investment. Only the investigations would be the judge of that. But it has not been happening for the last four or five years because the trustee banks who manage our money are non-directional. What that means is we can’t tell them where to put the money and they have to follow the investment guidelines of the SEC.

Who developed these regulations?
The regulations are imposed by the SEC. We have regular dialogs with the SEC. At one point, we would meet them maybe twice a month. And they would tell us, “these are the improvements that must be done.” So the next thing to do is fill up the framework and we would be a resource. So it’s the SEC that’s the primary catalyst; we are the resource. But it’s their work. It’s not what we want that comes out. They’re the ones that tell us the final product. So the key is the SEC. But it’s a journey. Implementing rules and regulations can change and can be adapted to the changes in the environment. It’s not very static compared to a law. A law is pretty much fixed unless you change it, and it’s hard to do that. The insurance industry has been trying to change the insurance law.

How could the SEC improve these regulations?
I don’t think they really have that much more improvement to do. I think the issues are more economic than can be corrected by rules or laws. I think what they have to improve or even always improve on is execution, which I am sure they’re always trying to do. I know they’re being criticized now for Legacy. Now Legacy is under investigation so I don’t want to be judgmental. But what I would like to say is if someone’s not following the rules, you won’t know until it’s too late, right? So it’s not an issue of incompetence. But in terms of compliance issues, the rules are in place. My heart goes out to the SEC for getting these criticisms. From our point of view, this is more of an economic issue than an issue of rules.

You said fraud is detected late. Are you saying there’s no monitoring taking place?
There is. And I’m not saying that Legacy had fraud. I mean why do banks float or fail? The rules are all there. That’s one reason. Second reason, of course, I think we seem to forget that in business there are risks. Not all businesses succeed. How many newspapers, magazines have started and how many more have died? Even if they follow the rules, business is cutthroat. It’s a competition. So when a company closes, there are many reasons for it. That’s all I’m saying. It doesn’t follow that the regulator was really very bad. Maybe they are; go find out. But until you know for sure, it’s a little early to conclude.

What’s your reaction to the statements made by Senators Juan Ponce Enrile and Manuel Roxas III that the SEC has been negligent?
Of course they are entitled to their own opinions and they have much broader experience than us. I just think that if there is [negligence], the investigation has yet to prove it and I’m not one to accuse another party. Perhaps instead of finger-pointing, let’s investigate the real causes and the solutions.

I can understand the frustration though. Maybe that’s why it was said; [it was] out of frustration.

Does the industry need a bailout?
No, I don’t think we need a bailout. And we have not requested a bailout. We are just facing our clients and holding their hands and looking them in the eye and telling them, “This is the situation.” We value you very much and we have no issues with these companies. These companies would like to work with you, biased as we may be, but at least we know we could protect you.

When agents talk to prospective plan holders, do they disclose possible investment risks?
No. Definitely when we started, no. Maybe now, over time it’s becoming better and better; but I don’t think in the extent that they should because it’s an evolving thing. Things were simple then. Open-ended plans: Give me so much and we’ll pay your tuition. You know some people pay 15,000 pesos (US$324.86) over five years for a class A school. They’re among the lucky ones. You know how much tuition went [up]? Sixty thousand pesos (US$1,299) a year. Times four, [that’s] 240,000 pesos (US$5,197). So 15,000 pesos made 240,000 pesos. Where can you get that kind of return? To get that kind of return, somebody up there, later on, will not get paid. And those [things] were not explained.

(Continued in the next issue)
Photo: Ayan Flotildes
Print ed: 03/09

 

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