Article: Property Investment
Interest Rates And Legal Matters with Frank Newman
This week I want to briefly address the commentary surrounding the latest interest rate announcement by the Reserve Bank and pick up on an issue a reader raised about the services they are receiving from their lawyer.
The Governor of the Reserve Bank has left the Overnight Cash Rate (the interest rate charged on overnight loans between financial intermediaries) at 2.5%, but has again signalled a rise in the future.
In this commentary Reserve Bank Governor Alan Bollard said, “Given the ongoing global economic and financial risks, it remains prudent to continue to keep the OCR on hold at 2.5 percent for now. However, if global developments have only a mild impact on the New Zealand economy, it is likely that gradually increasing pressure on domestic resources will require future OCR increases.”
He added “the European sovereign debt crisis could cause a further slowing in global activity, putting downward pressure on New Zealand’s commodity export prices. The difficult international market conditions could also result in increased New Zealand bank funding costs over the coming year.”
While the timing and speed of interest rates rises is debatable, it is inevitable that interest rates will (eventually) rise and the OCR will return to somewhere hear its long-term rate of 5.5% (see graph). Investors need to be prepared for this eventually.
Graph: Overnight Cash Rate
A reader has emailed me for comment about how much they are being charged for legal services, so I thought I would share some thoughts.
Firstly, professionals are not your friends - friends don’t charge for every conversation you have with them. It’s a business relationship where they provide a service and you pay a fee, and should be an enduring one if you get value for money. Don’t talk about the weather or the latest All Blacks game. In most cases the time clock is ticking like a taxi cab meter, but at a much faster rate.
Professionals like lawyers usually charge in units of time (six minutes is a unit, 10 units in an hour). Some local lawyers are charging $35 a unit (plus GST). That’s $350 an hour or $700,000 a year assuming they are able to charge 100% of a normal working day. Legal executives may typically be charged out at the equivalent of $250,000 a year (please don’t confuse that with what they are actually being paid!).
While some firms want to encourage communications with their clients and therefore don’t charge for short emails or phone calls, many do. In one case a lawyer charged one “unit” of time (6 minutes or part thereof) for a 12 word email – about $2 a word. Ask if you will be charged for brief phone calls and emails.
Shop around. I am aware of one example where a local firm quoted $1,200 to do some conveyancing work. A firm in Auckland quoted $850. There is competition in the professions and pricing is getting more competitive as a new generation of professionals challenge convention and share the benefits of technology.
Ask your professional if they are charging for the “job” or by time. Some lawyers do both. They charge a fixed fee for the things junior or admin staff are able to do, and by time for their high value staff and partners. If you are charged by the “job” then that amount must be quoted to you and you need to agree to it before the work commences. If the price isn’t agreed upfront then you can assume it is time based and your rights as a consumer include the right to request the time and cost ledger that supports the bill, which must be reasonable.
