By Amanda Morrall
Much has changed in the financial advisory sector over the past few years. New Zealand went from being the equivalent of the Wild West to the former East Germany with respect to the rules and regulations.
For my Take Five today, interest.co.nz's senior analyst Craig Simpson (who is also accredited as an authorised financial advisor) and I discuss how to judge performance of your portfolio as well as some key considerations around using a financial advisor.
We welcome your comments or question by email at amanda.morrall@interest.co.nz or in the comment thread below.
1) Performance
AM) How can you judge if your fund is performing well?
CS) It's very subjective because it depends on your goals and your objectives. As a general rule of thumb, if, for example you are in NZ equities (that's New Zealand companies) you would be looking at the NZX50 as a benchmark. You have to benchmark it against something that is appropriate for your situation. If your goal is to beat cash by 5%, then that's going to be your benchmark. Ultimately it comes down to what you are trying to achieve from your portfolio.
AM) What's a good benchmark in KiwiSaver?
CS) I think the median of all the managers in a particular sector. Some will be in the 50 per cent above, some will be in the 50 per cent below the median. Our data will give you a ranking. Something that ranks in the top dozen consistently. See our performance ranking list here. See also Morningstar New Zealand regular KiwiSaver performance reports here.
2) Fees
To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter @amandamorrall
25 Comments
My financial advisor is a lovely down to earth guy and the best part is he's quite well off and doesn't have a driving need to sell me stuff every time we meet. We just yak about anything and everything for 90 minutes and eventually I get around to asking a few hard questions.
The net effect on me of these new regulations has been a lot more administration to wade through.
It all seemed rather predictable I think.
- There is a slow erosion of trust (or morality in reverse) in society.
- We live in a culture where people feel entitled and it's about rights and not responsibilities.
- There is a strong belief you can legislate morality.
Some people make silly investment choices. Some people get ripped off. A "need" to regulate arose because people are entitled and not responsible.
But if you regulate you must measure compliance which must result in a paper war proportional to the volume and complexity of regulation. It's hard to believe they wouldn't have known that.
The only success might be driving the dishonest to Australia.
The industry could see the paper war coming a mile off and yet (rightly or wrongly) the regulator believed it would give clients more confidence in the process.
Having done some consulting in this area (in a past life) I can say the advisers in some cases are not helping themselves by creating a mountain of paperwork because they believe they need to in order to fulfil the requirements of the regulator - this is in fact not the case.
My gut feeling is after 12 months or so of operating in the new environment clients are no better off than they were before.
One big change I have seen has been the number of advisers electing to be Registered Financial Advisers (RFA's) and not going for full Authorised Financial Adviser (AFA) status. Main reasons for increase in numbers of RFA's do not want the additional hassle of having to sit papers and exams and the additional requirements of disclosure and auditing an AFA goes through. It does not mean that the RFA is not capable - they just can't be bothered.
By not having a greater number of AFA's the public (IMHO) are losing out.
If I had an insurance background then yes I would go the RFA way as there is no need to provide advice on the category one products - you can eek out a reasonable income through renewable commissions.
However my background in sharebroking/financial planning/portfolio management and this naturally pushed me more towards being an AFA - I was doing some advisory work for a select few clients once I left BNZ Private Bank so needed to be AFA'd too.
In hindsight, if I was working in a full-time advisory capacity I think I would opt to be registered as only dealing in the wholesale / high net worth client arena.
The only success might be driving the dishonest to Australia
We're already here Ralph ;-)
I'm a strong beleiver in Caveat Emptor. Got ripped off by Bluechip or Hanover? deal with it. Bought a leaky home/apartment off plans? why expect the council to remedy it (at the ratepayers expense)?
If there was blatant fraud involved then sure - the SFO should leap in and attempt to extract the maximum possible for those caught in it, but even fraud is still your lookout at the end of the day.
We live in a culture where people feel entitled and it's about rights and not responsibilities.
Yeah that needs to end.
That wasn't to be smart. It's what I have observed. If you rip people off big time in a place as small as ChCh your chances of starting another business are zero.
In Aus, because of the huge market size I have come across companies who are founded on the idea of ripping people off and have no intention of repeat business.
If you're a flexible morals type and want anonymity then Melbourne seems like a great place to emigrate and start again.
StanGoodvibes - When we had Caveat Emptor people took responsibility and also did their due diligence and there appeared to be a lot less problems and a better educated populace.
Now the young ones go to Uni and call that their education when what they really get is a few skills in a particular area. There is absolutely no replacement for real life education and experiences. People need to have the right to look after themselves and ensure they take responsibility. Instead we have the State having the Right to take care of your Rights and then they make themselves responsible for everything that goes wrong and keep legislating trying to improve upon their failures.
The shift to Caveat Venditor has dumbed people down, ensured they feel entitled and that they take no responsibility for anything.
Agree on the SFO ! The trouble is very few people seem to be able to recognise fraud. They trust the snake oil salesmen and haven't learned to judge people for themselves. I blame most of this on the namby pamby, new-age, get along with everyone regime.
Getting to financial advisors - I have lost small amounts of money using them and therefore don't bother with them anymore. They have lied, misrepresented facts and generally been confusing and complicated while drinking my coffee and eating my food.
There will be good advisors out there and I have come across the odd one who have given me a nice little tip for free. In fact it was a financial advisor who told me that no-one but yourself has your best interests at heart.
And I would just not use a finacial advisor.
I don't have the sums a high roller has, I don't even have $20'000 to mange. More like over $10'000. And much of that is locked away in Super savings acounts (Kiwisaver, etc. )
And I just would not want to pay an extra 1% on my portfolio just to have it managed. Or a few hundred dollars a year (wipe out my earnings).
Just read lots about money and stick to simple investments like index funds and balanced funds. And look for the lowest cost managed funds, (much easier than hoping that fund will make more money to cover the extra fees.
Having finacial advisors a great for a high roller, then I might use one but what about the little guy?.
Interesting. I've put off having a financial adviser because
a) I get to spend a lot of time here at The Bank reading financial blogs/websites/news sites and think I have a pretty good picture on the global financial situation and equities and property etc, and
b) I'm on an IT project for the Superannuation department at the bank so am pretty up to speed on super and how that can work, and
c) my circumstances are somewhat trickier than most in that I have to juggle NZ property and a mortgage while working in Australia with an Australian Superannuantion Scheme so have to juggle exchange rates etc.
For instance: I have my property in NZ rented and the rent just covers the interest and expenses, so I tend to throw lump sums at the capital on a regular basis. This is helped by the high AUD. But I was also considering going in with my GF and saving AUD$1000/week (pretty easy) and shipping that back to NZ to invest in a renter in somewhere with a high gross return and good tenants (I know where but I'm not saying ;-). But I can also put AUD$25,000 into my Aussie super before tax each year, which is a massive saving, but I can't access that money until I retire (20+ years).
So... should I a) pay my mortgage off as fast as I can given the low interest rates and high AUD/NZD exchange, or b) save with my partner and invest elsewhere and put those properties into my LAQC (or what it's called now) that has my current property in it, or c) stick as much as I can into my super before-tax and hope that it works out OK in the long run? (I would still have *some* money after that to add to my NZ mortgage)
???
I am all in favour of saving. Without savings there is no money to start a business.
But regulatons are two edged swords.
Regulations are not performance based, a fund does not have to perform finanically it just has to meet regulatory requirements. It is inevitable the entire industry will end on a low baseline of returns.
Regulations change. It is also inevitable a scheme with this much money will be subject to huge political and lobby group pressure. There will be more profit in regulatory manipulation than attracting new members or smart investment.
I am therefore quite circumspect about dumping large amounts of savings into a political football I have no control over.
I am all in favour of saving.
So then which option would that be, a, b, or c?
I think saving the AUD$1000/week is the best option myself, I can still afford to salary sacrifice $100/week or so into my aussie super which all helps.
Of course with 2% interest rates in the UK and contracts paying 400-500 quid a day going to London and buying another flat there could be quite a good idea too...
Arrrrghhhhh!
I think Roubini is on the money and expect one or more of his 2013 events to happen.
Faber thinks China is at 4% growth and dropping right now.
Therefore:
1. Have a cash buffer of at least 3 months full expenses close.
2. Cover off your insurance downsides for large scale events.
3. Pay down mortgage/loans to whatever is a reasonable cashflow position for you.
4. Move super into cash for the next 12 months.
Personally I would not invest to the UK because of the pound, but I have been hedging to USD on the swings and back to AUD on the roundabouts. Regardless of your opinion the USD will still be seen as the safe haven.
If things go bad I will:
1. Move funds into the highest credit rated bank in NZ at that time.
2. Buy a small amount of physical gold.
3. Keep about $10,000 in cash in the house.
If things go worse I will buy as much Otago 2008 Pinot as I can store and kill the fatted calf.
historically the pound has always hovered around 3-3.5x the NZD. I suspect that the NZD strength is an aberation bought on by strange times in Europe, and the strong AUD. If we are talking about the medium term of say, 10 years or so, I'd bet on sterling getting back to that rough 3x ratio again, depending on how well the UK does in getting back into a surplus any time soon.
The drawcard with the UK is that you can pick up a good one-bedder in central London again for about 250-300k sterling, and a 200k mortgage at 2% is.... 80 quid a week. Between two of you earning approx 2000/week each, there is scope for some serious saving. AND London is now cheaper than Sydney (and sooooo much more fun).
Of your points 1-4 above I have covered 1,2, and 4 and still chipping away at 3.
if things go bad I will:
1. move anywhere in Oz, NZ* or Europe for any kind of job.
If (when) it all hits the fan, I'll move back to the self-supporting lifestyle block in NZ (bringing my shiraz with me).
*anywhere in NZ except Wellington. I'd rather starve to death first.
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