Karma Comedians

The Leader of the Opposition, David Shearer, recently said that the country "didn't need a stand up comedian as Prime Minister".   I think this is a clever undermining of John Key's most attractive quality.   Key comes across as likeable and he sometimes says quite funny things.   This is a massively rare trait among politicians.   It makes him electable.   

He does appear to have a light approach - but at the same time he usually shows the appropriate level of gravitas.    He also knows when to be 100% serious.   This seems to come naturally. 

So...Hekia Perata MP joked yesterday that a problem with the Ministry of Education's own payroll system was "karma", referring to the Ministry's problems with Novopay - the new system that pays teachers.   She was so excited by her joke, she even tweeted it.

Context and placement is all-important.   

Context -  If you or I had said it, it would be a mildly witty comment and we would all get on with our day.   What makes this different is that Hekia Perata is the Minister for Education. 

Placement - She shouldn't have opened with the joke.   She should have just given the information that the error was unrelated to Novopay - apologised - and reassured everyone that is was a one-off and that they were getting their pay just the one day later.    Crisis over.

A journalist may well have followed up with a harsh question about the ministry  and Novopay.   That would have been the time to come in with the "karma" joke, or a variation of it - saying that she does not believe it is karma, followed perhaps by a good-natured chuckle.

The use of humour in politics is a minefield and few politicians have deployed it successfully over a long period.   I would suggest that Perata lets her leader do the jokes from now on.

What is a Financial Adviser?

The regulation of financial advice is a good thing.  Before July 2011, anyone could call themselves a financial adviser and promote that service to the public.  Anyone.

A few weeks after landing in NZ, back in 1999 - a financial adviser  (let's call him Jeff) offered me a job.   This was moments after meeting me, by chance, at a family gathering.   I'd like to think that I cast a spell on him with my beguiling charisma, but that wasn't it.     Jeff employed young people to sell life insurance in shopping malls, from a booth.   I would be paid for each "sign up".   He would earn several times what he paid me from the insurance company commission.   A brief chat about savings and insurance revealed that he just wanted to make money.  He was quite open about that.  I gave the opportunity a miss.

Jeff's business model seemed to be very successful, but he is not a financial adviser any more.

There used to be quite a few Jeffs roaming around.    Those characters can no longer call themselves financial advisers.    After a brief period of consternation, they exited stage left to do something else because it became too hard to make money.   They were never going to study for exams, or demonstrate that they knew what they were talking about.   

So now we have actual professional financial advisers.     About 2,000 of them have achieved  qualifications, completed the authorisation and registration process and they are now Authorised Financial Advisers (AFAs).    They also must belong to an official Disputes Resolution Scheme, which gives an independent outlet for a person when things go wrong.   The register of AFAs is here.

At this point, I stress that there are great advisers out there who are not AFAs.    They typically specialise in the more basic insurance and savings products available.    But, like the AFAs, they must clearly explain how they are paid and who by.   They must also tell you the limitations of their service to you; for example - if they can only recommend one provider's products.

So (very broadly) that's the professional financial adviser.    Problem solved then, eh?   

Partly.

We know, don't we, that self-appointed financial advisers walk among us.   They can be just as persuasive as the professionals - sometimes more so because they have no vested interest in the thing they are recommending.    In recent months, I have been strongly advised to :

Invest in a particular fund offered by a particular KiwiSaver provider
Invest in leveraged foreign exchange things (that I don't understand)
Buy gold
Stop being in KiwiSaver
Quadruple my KiwiSaver contributions
Forget about life insurance
Increase my life insurance

None of this advice has come from people that know me particularly well.   They are just offering well-meaning information that they have picked up.   Like the Billy Bleach character on this clip.  When his advice falls flat - he simply says "that's weird.." and moves on.


If you take advice from a professional financial adviser, and it goes wrong - there are avenues to go down that would help sort that out.     With the self-appointed financial adviser - you're on your own. 

KiwiSaver is More than a Party

Hidden behind the sensational headlines about what Gareth Morgan thinks about cats, was the news that the BNZ are getting ready to enter into the KiwiSaver market.

This excellent article in interest.co.nz  likens their entry to someone crashing into a singles party at 1.30 am long after everyone has had enough time to find a partner.

I prefer to think of KiwiSaver as the strip of nightclubs in Ibiza.  The music plays permanently from many venues and the party goes on 24//7.   If you're on holiday there, you may just fall into the first one you see - but you know that you can walk out at any time and try another one.

Lets say you find a nightclub you like...you can't stop your crazy feet dancin' the night away.   So you keep coming back.    Then, without warning, the DJ starts to play Shakin Stevens ballads.  What the..?    A coach load of drunk PE teachers arrive on the dance floor and start to make fun of you.  Then they double the prices at the bar.

This is going to make you want to find somewhere else to go.   If a new nightclub provider turns up with a great music, friendly people and reasonable prices - you are going to go to that one instead.  And so will everyone else.   Apart from the PE teachers.

If they know what they're doing, the new nightclub should do very well indeed.

KiwiSaver maturity - end of story?

When your KiwiSaver account matures - for most of us this is at NZ Super eligibility age (currently 65) - you can have all the money.   No tax.  It's all yours. Woo, and indeed, hoo!


Some older people that joined KiwiSaver when it started had to be in KiwiSaver for 5 years, even though they reached their 65th birthday a while ago.   I have already had two people tell me about their KiwiSaver windfalls on this Summer's barbecue circuit.

It's fair to say that they were cock-a-hoop.   They only had 5 years of contributions, so it wasn't ever going to be their main retirement fund...but they did the maths and saw a handsome return in comparison to what they paid in.    A nice treat was bought and paid for - and good on them.  

But did they do the right thing there?

What happens to KiwiSaver once you reach maturity is quite good.   You don't have to take out all the money if you don't need it all right now.   It can remain invested for as long as you like.  With many providers, you can even take out the investment earnings and leave the capital amount in there.   It's up to you.    

If you take all your KiwiSaver money out straight away, you can't join KiwiSaver again.  


Once your  KiwiSaver account matures, it becomes "on call" - accessible at any time.  In that way, it continues to be useful, well into retirement.   

Indeed, if you are around this age and you have other long-term savings vehicles, like a unit trust plan or a personal superannuation scheme - you could even look at throwing that money over to KiwiSaver.   So if the KiwiSaver has not a lot in it, you can give it a boost with extra money from the other savings plans.

Why?   The admin and management fees are generally much, much lower in KiwiSaver.   Simple as that.  Why pay more for essentially the same thing?    Check this point with your provider and take their financial advice if you think this applies to you. 

Ethical investing in KiwiSaver

This is not a contradiction in terms.   You don't have to invest in pornography, gambling, tobacco, weapons or Cliff Richard to make money.   You can invest ethically.

Hang on a minute - Cliff isn't unethical, is he?   Not as far as I'm concerned.  But I know people who would disagree.   Strongly.

Perhaps I am being flippant, but  I am making a point here.   

I can say with total confidence that my ethical standards are not exactly the same as your ethical standards.    Neither of us are necessarily right or wrong - we have complex ethical coding programmed into us over decades.   Family, friends, teachers, work colleagues and everyone else have contributed to this and as a result of all of that - we now have You and what You think is OK.

So how can a fund manager hope to produce a fund that invests in all the things that You are comfortable with?    

To make this even harder, it is common for an active fund manager to keep their investment choices secret.   Why?   Well, they spend a great deal of time and money on research.    If they told you which companies they liked - you (or a competing provider) could just copy it, and save a heap on fees.   It's commercially sensitive information.

So with KiwiSaver, a compromise is to look at the passive investment style.    That is, the money you invest tracks an index (like the NZX50) without making a judgement call on which companies are going to perform the best.  Your investments goes up or down with the movement in that index.

An active fund manager makes these judgements every day in the hope that they will beat the index. 
The active manager may decide to invest heavily in a company that doesn't meet your ethical standards.   That's because the active manager will be looking to see which companies are going to deliver a good return - they do not pause to think whether this is ethically OK, unless they declare otherwise.

With passive investing, you are not avoiding the unethical companies, but you are not actively investing extra money in them either - in order to make more money.    It's a compromise until we get to the day when we can easily mix & match our own KiwiSaver investment decisions online.

Whether this is enough of a compromise depends on You.   



   

  

Shedgate

Advertising savings products is always a challenge because it's in abstract thing.   It means different things to different people.   You can't really show a wheelbarrow full of money being pushed by someone with grey hair, who's laughing his head off.

The now defunct finance companies advertised aggressively directly to the people and I think this is where they inflicted the most damage.   I wince at the memory of the Hanover TV ads, for example.   They were very persuasive and soothing.    One was about a shed on a farm that weathered several storms over many years.

What was particularly insulting was that the advertising agency would have created the ad after listening to Hanover about who the target market was.    So they went with  "a rural bloke talking about his old shed".   And then it was implied heavily that Hanover was "just like that old shed".   That's about as much detail as they thought their prospective customers could handle.   They will have decided that, on purpose, in meetings.

The irony is that the old shed is probably still there, whereas Hanover has gone.

Hang on though...did the shed even exist in the first place?   Given what has gone on, it's a fair question. 

This is of course a minor quibble compared to the hardship suffered by those who lost their savings and I don't mean to make light of that at all   

However, it is worth noting that anyone who wants your money and advertises like Hanover did or they get all soft-focus and sentimental, like the old Werthers Original TV commercials - then I would raise your eyebrow and keep it raised until they offer something of substance.  

Medical Treatment via KiwiSaver

This article caught my eye today.    It tells the story of Peter and Kate McKenzie-Bridle - a couple that used a little-known provision within KiwiSaver to access money to pay for a medical procedure (in this case a cochlear implant) for their 6 year old daughter.

This family were not in financial hardship, but the $30,000 cost would have put them into debt and, quite rightly, they wanted to avoid debt.  

What I particularly like about this story is that the McKenzie-Bridles used their legal expertise to successfully argue a case for the withdrawal.  But they didn't stop there - they made the details of their case public in order to make future withdrawals easier for other people who may need this provision.     They also raise awareness for cochlear implant funding.

This will have a real impact among KiwiSaver providers and the independent trustees that review and approve such applications.   

It highlights an issue that I think needs addressing.    While the family seem to have had a good experience with their provider, Fisher Funds (no relation) and Trustees Executors - it is entirely possible that another provider/another trustee may not have approved it because the provisions within the legislation for early withdrawal are open to interpretation.   How many other similar cases are out there?

In theory, if the family hadn't received the decision they wanted, the KiwiSaver fund could be transferred to another provider, and an application then made to the new provider - and so on - until someone said yes.  That process could take years.

This is not an ideal state of affairs, in my view.     

I believe that the decision making on such matters should be centralised to avoid inconsistency among providers over interpretation of the legislation.      Providers would then be providing the scheme - which is, literally, their role.      

Yesterday's Gone

Fleetwood Mac were right on that one.    They were very wrong about thunder only happening when it's raining, but they are right about the gone-ness of yesterday.    
 
In the world of financial services, there is a real problem with the past.   On the one hand, the investment advice given is often supported by what has happened in the past.   And then it is said quite solemnly that "past performance is not to be taken as a guide to future performance".  

The public hate that kind of disclaimer.   They really do.  


The brutal truth is that no-one knows what is going to happen in the future.     It drives us mad, but that is literally how it is.   We really need to get a grip on that concept.   You can control the level of fees that you pay, but you can't know for sure which funds are going to be the best.


One thing to watch for are the charts used as a sales aid that track $1 invested in, say, 1900 like this one and how much they'd be worth now if they were invested in shares,  property, cash or bonds.   The figures always look really impressive for shares. 

This is what such charts can't show:

1.  They can't make any assumptions for tax (it's too hard), so they assume that all growth is tax-free.   
2.  They can't make any assumptions for fees (it's too hard), so it is assumed that all growth has had no fees come off them.

3.  They overlook the fact that it is impossible for a retail investor to have invested in one managed fund product for that entire time.   

Other than that, they're fine (!).

My take on this is that for most of us KiwiSaver is something we are going to rely on and, for me personally,  I don't fancy being talked into an expensive, highly volatile fund - especially when employers and the Government have added a generous return to my fund already.     When I have extra money knocking around that I can afford to lose, I'll let you know.          

KiwiSaver Fees - WEP?

An older gentleman I used to work with had a joke every time the payslips were handed around.   Holding up his payslip, he would look confused and say "does anyone else have this code WEP on their slip?". He would then inspect the small print and "ah! it's all right...it's explained here...it means Worth Every Penny".    I guess you had to be there.

Most of us don't really assess whether KiwiSaver fees really are worth every penny (cent) - especially in the early days when there's nothing much in there.   With financial products like KiwiSaver, fees just kinda happen.   They are deducted from the fund as it builds.   Besides, aren't they all about the same?

Those that have seen my Quick Guide to KiwiSaver Fees here will have noticed that KiwiSaver providers do charge different levels of fees.  It's a competitive world - and there's nothing wrong with that.   KiwiSavers can change provider very easily.

What the Sorted fee calculator shows us is that likely impact on your balance at age 65.    In the example on the video, the fee range is from 14.5% to 4.6%.    So if you build up a fund of $200,000, you might have paid $29,000 in fees.   Or if you were with a different provider, you might have paid only $9,200.    Both figures seem high...especially when investment statements tend to express the fees in terms of the annual %  fee charge, which is usually under 1% .  

What's happening here is just mathematics.   As you build up funds, growth happens on the growth.  This compounding growth is like a cartoon snowball rolling down a hill, getting ever bigger by its own momentum, which makes your fund much larger.    Happy days for your fund.    Yet...the same principle also applies to the fees that are taken away.  

If you are paying higher fees, you need to be confident that you are getting value for money.   Sorted cannot predict which provider or scheme is going to be the best at growing your money (no-one can).

So we turn to the things we can control.   In KiwiSaver, it's the level of fees you pay.    Now, your  provider can't just reduce the fees for you because they think you're great.    If they did that, they would probably have to it for every member. 

Using Sorted, you can compare against other providers - even other funds with the same provider - and see whether you are happy with the fee levels.
 
The good news is that some new regulations over fee disclosures are on their way.    The fees will be explained far more clearly with effect from April 2013 - across the board.  So look out for the publicity around that and make sure that you are happy with the fees being charged by your provider. 

If you have been in KiwiSaver for a few years, your snowball is well on its way.  So the fee levels are beginning to make a bigger difference.

KiwiSaver Fees

Back in the eighties, a colleague sent a letter (remember them?) to a client suggesting that they could, if they want, pay their fees "anally, rather than quarterly".    Rather brilliantly, the client responded that they were happy to continue paying through the nose!

Fees are very important, particularly in KiwiSaver.    For employees, most people are paying small contributions regularly.    At the same time, small and regular fee deductions are made.

Fees tend to be charged in two broad ways;  a set $ admin fee and a % deduction also comes off to pay for the investment management, the trustee and distribution costs.   

If the set $ admin fee is low - that doesn't mean that you are paying low fees across the board.  This is all due to be made much simpler in April 2013 - but in the meantime, there is a way you can check that for yourself.  

My Truly Independent Quick KiwiSaver Fee Guide on YouTube shows you how.  

You might discover that you are paying relatively high fees.    That is not necessarily a bad thing.  If you are in a specialist/boutique KiwiSaver fund, then those do tend to be more expensive to run.  If that provider is delivering for you, then perhaps they're well worth it.

Having said that, if your fund turns out to be very expensive compared to others and you can't see why...then  you are perfectly entitled to ask your provider to explain.    This is all publicly available information.






  

Truly Independent Quick Info about KiwiSaver on YouTube

The holiday weather has been so sensational that I thought I would start my YouTube videos a bit earlier than planned.

"Planned?" I hear you say with an incredulous tone.     Yes indeed - everything that appears on the internet from Truly Independent Financial Advice New Zealand Limited is part of a  meticulously-planned, 21st Century style cyber-campaign.    If it looks a bit rough, well, that's the branding I'm after so that means it's working.

"KiwiSaver Quick Info Videos?"   I hear you say - again, with a tone that suggests that this is a ridiculous idea.  Let me explain:

Over the next few weeks, I am going to share information with you about KiwiSaver.     It'll be in bite-sized chunks because more than a minute or so about KiwiSaver can get a bit dull.    So I am going to keep them short, snappy and relevant.

This one is about how much to save for retirement .  It's probably going to be my most scenic film, so enjoy it while it lasts.    Basically, the answer is a big fat "dunno" because how much you need to live on and how much you need to save is a very personal thing.   And unlike most Authorised Financial Advisers, I do not claim to be able to see into the future beyond my next cup of tea. 

So one way to do it is to pretend that today is your 65th birthday, and you would ideally like to stop working.    How long would your savings last, if you have any?  The good news is that you are entitled to income from your NZ Super .   But how long would you last on that?     If the answer is "about 10 minutes", then obviously you need to put some more money aside.    KiwiSaver is a great way to do that.

This next one is about KiwiSaver and children.   Quick information here about what happens when a child joins KiwiSaver.   Basically, the Government throws in $1,000 and that stays there until they are entitled to NZ Super.    That's a long time, but that's also a long time to build up a useful pot of money.

This will be particularly helpful to them when they want to buy their first home.    If you have put extra money in, that money plus the investment earnings is accessible to help them buy a first home.

Enrolling children has to be done with a form at the provider.    Get your own and your child's original birth certificate.   Also, arrange for the IRD to give them their own IRD number.    That way, their investment earnings are taxed at the right rate.

Balderdash from the world of sales #2

Pulling emotional triggers in sales are becoming more prevalent and it's something to watch for when corporations are trying to get your money or attention.

Some of these guys will stop at nothin' to get you blubbin'.  

If you have been in any sales role ever, you may well have seen the short film about  Johnny the Bagger.  It's an inspirational customer service film available on you tube.   It's actually from an organisation that does sales presentations to American companies.

It tells the story of a young man who, inspired by a sales presentation about going the extra mile,  slipped his own  "thought for the day" notes inside the bags of shoppers as he packed their shopping in the supermarket where he worked.    Apparently, this initiative led to huge queues of people at the checkout counter where he was.    You see, they all wanted his note in their bag.

I saw this film, once again, a few months ago at a sales conference.    I say "once again" because I have somehow contrived to see this clip at least 6 times in my working life.
Johnny the Bagger has Down Syndrome.    As the producers of the video well know, this information changes everything.      

There is troubling stuff going on here on a couple of levels.    Like many with Down Syndrome, it sounds like Johnny takes on information very sincerely and is eager to please.   He was inspired by the sales presentation so much that he has taken the initiative to write these notes in his spare time.

The store manager seems to enjoy that he has someone doing a whole lot of unpaid work, bringing in all these customers - he tells the sales presenter how successful it's been, who in turn takes the credit for inspiring Johnny in the first place.   And now she is all over the Internet and conferences, sharing the story.   The DVD package costs $995 USD.  

So who is this exceptional young man who changed the culture of this supermarket?   Johnny himself remains an enigma.   We are assured that Johnny is a real person and the supermarket is real.   So why is the supermarket so coy?   It would only take the briefest of explanations.

Each time I see it ask myself (and now you) whether this is a horrible example of exploitation of someone with Down Syndrome, or Down Syndrome itself, or is it just a load of old cobblers?  

The video might be sincere, straight-up Truth.   But it doesn't come across that way.   The real people, talking to camera, would be 100 times more effective.   Why didn't they do that?  

In conclusion, this is balderdash because it has an overbearing whiff of something not-quite-right.   Without the pulling of so many emotional triggers, that fact would be rather too obvious.

Safer than Houses

There seems to be an awful lot of houses for sale at the moment.   On a break in the Coromandel, even my 6 year-old daughter noticed how many, compared to when we were there last year.

It serves to remind us that houses aren't always "liquid".   When you need to sell your house, there needs to be people around who want to buy it.   If you need the proceeds  urgently, you might find yourself making compromises.   That's another financial hazard.   Investing  money in something that you can't have access to when you need it.

Long-term investments like property tend to deliver over time and KiwiSaver is certainly similar in that respect.   However, I think they are different enough to treat differently.   Know what I mean?  No?  OK, I will put it another way then.

Once you get to a time when you are entitled to take your KiwiSaver benefit, you are not relying on the market to be able to cash it in.   It's yours.  It's there.   If it's not enough, you can leave it in for a little longer or pay some extra money in.

Most of us are paying into a mortgage and we do that because the long-term promise is that we will make a good return and we need to pay for the place we live in, too.   That's already a long-term, volatile and high risk investment.   We sort of know how that works and we have got used to it.

What if your KiwiSaver provider said that you couldn't have your money at retirement?  And you had to wait until they could find a "buyer"?   You'd be outraged.    And that's even before we talk about the actual investment return.

Think about your mortgage and perhaps balance that long-term investment with your other long-term investment, KiwiSaver.    KiwiSaver incentives already give a great return before the money starts to be invested.    If you are relying on KiwiSaver for a good retirement, going high-risk, high volatility isn't always the answer.