Mary Holm is a personal finance columnist for the NZ Herald.

Mary Holm: Investing need not be hard work

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Mary, I was pleased to see in your column last week that at last someone was saying people must take responsibility for their own investments. We live in an age when we like to palm difficult decisions off to others, thus absolving ourselves of any responsibility.

I have spent 50-plus years making all sorts of investments, and believe that if someone has $10,000, $50,000 or $150,000 to invest they are entering into a part-time business, whether they like it or not.

If they give it to an adviser without checking on the adviser, should the adviser lose their money it's partly their own fault. They have to be in constant touch with what the adviser is doing with their money. Giving money to a finance company is letting someone else do what they like with your money.

Having a part-time business, with money or selling produce, the principles are the same - you have to research. You have to read mags like the Headliner, Independent and Herald. The subscription fees are tax-deductible. Most of all, you have to give it time, make decisions, talk to your broker.

You will make mistakes, but that is part of learning.

Gosh, you make it sound like hard work for those not interested in things financial. And it doesn't have to be. While your way of investing has merit, I don't think it's the only good way.

Of course everyone should take some interest in their investments. But it's not essential to read financial publications and have regular contact with an adviser or broker if you invest the way I largely do, using index share funds - sometimes called passive funds.

These funds invest in all the shares in a market index, changing their investments only when the index changes. Because the fund managers don't research which shares to buy and sell - as they do in so-called active funds - index funds are much cheaper to run. This means the fees are lower.

That wouldn't mean much if their performance was inferior. But over several decades index funds have generally performed at least as well as active funds - and better, on average, after fees.

This certainly seems true of international funds, where I have most of my long-term savings. Some say it's less likely to be true in New Zealand, but I'm yet to be convinced about which active New Zealand share fund to switch to. So I'm sticking with index funds in this country too.

This choice is not just about low fees. I like the diversification, which - if you choose wisely - is often wider than in active funds. And, to be honest, I also like not having to spend hours reading financial publications. There are so many good novels.

Sure, even index fund investors need to review their situation every year or two, perhaps to rebalance the asset mix if one type of asset has performed much better than others and now looms too large. And all investors need to consider moving gradually into less risky investments as they approach retirement.

Following on from your correspondent's question last week about KiwiSaver timing, can you explain this.

I opened my KiwiSaver account with $100 on June 5, 2009, so my money was in for 25 days. I was expecting a tax credit of $71.43 (at a rate of $20 a week), but in fact I got $85.71. So how do they do the calculation?

Oh no, you got $14.28 more than you expected, at the expense of all the rest of us taxpayers. Is there something deeply wrong with Inland Revenue's number crunching?

No. It's dead right.

As we've said before, in your first year in KiwiSaver, the maximum tax credit is proportionate to how much of the July-June year you have been contributing.

The start date for calculating your first year tax credit, according to Inland Revenue, is generally the earliest of:

* The date the account was opened by your scheme.

* The first day of the month in which deductions were first made from your pay.

* The first of the month when your provider or Inland Revenue received your first contribution.

In your case, it's probably June 1. The maximum tax credit is actually $20 a week, which comes to $1042.86 a year - ignoring leap years. (I use $1043 because mucking around with cents makes things unnecessarily complicated.) Using the exact number, that equals $2.8572 a day, or $85.71 for the 30 days in June.

QED, as we used to say in high school science.

We have two boys aged 9 and 11. If we set up a direct debit from their savings account of $25 a week into their KiwiSaver accounts, are they entitled to receive the $1043 tax credit at the end of the year? Or do they have to be employed to receive this?

Neither. They have to be 18, whether employed or not.

It's good to sign kids up for KiwiSaver - to get the $1000 kick-start. But the lack of a tax credit means there's not much point in contributing to their accounts as opposed to saving for them somewhere else, where they can take out the money later for tertiary education or starting a business.

Mind you, if you want to help them into their first home, KiwiSaver works well. They are allowed to raid their KiwiSaver accounts for that.

At the end of last year you published a list of investment advisers who are solely "fee-based" - that is, they do not receive any remuneration from the investment provider.

I would like to suggest that financial advice is much broader than investment advice. And one of the problems facing many consumers is knowing how to access good, impartial financial advice.

Much of the financial services industry relies on products - bank accounts, credit cards, mortgages, insurance, savings plans, investment portfolios, family trusts, etc. And in many cases financial advisers only get paid when a product is sold. This leads to the myth of free advice. In many cases, the free advice is a lead-in to a product sale - how impartial is that?

But what about the client who just wants advice? This may be about existing products which they hold, or it may be more strategic in nature. It may simply be advice about whether or not to join KiwiSaver.

There are financial advisers who can provide this sort of "ad hoc" advice. But they need to be paid. And often the client cannot or will not pay the adviser a fee for the advice. Why is this? Maybe because the client does not believe that the advice is worth paying for?

I often encounter clients who have, through the traditional channels, received appalling "advice" which has created serious difficulties for them. And very often the "adviser" has been handsomely paid for selling a product which was completely unsuitable.

In my opinion, comprehensive financial planning should be fee-based strategic advice with no (or minimal) coverage of products. Once the client has accepted the strategy, implementation may well involve products. These should be dealt with separately but should not be an expectation. Nor should the plan fee be refunded - otherwise the plan itself has a "hidden agenda".

Properly carried out, comprehensive financial planning is a very detailed and time-consuming process (for both adviser and client). However, it is possible to provide partial advice, as long as both parties realise that this is what is required. Therefore the fee can range between a full financial plan to an hour or so of ad hoc advice.

Of course, different financial advisers build different business models according to their skills, their interests and the clients they work with. However, the point I am keen to make is that there is such a thing as financial advice, and this should be viewed separately from all the different products out there.

You make some good points. Investment is certainly just one of many aspects of financial advice.

Lyn McMorran of Westpac Private Banking, who is president of the Institute of Financial Advisers, lists the following types of advice offered by institute members:

* Investment advice - on lump sums or long-term savings.

* Risk protection - income protection, life insurance, trauma/critical care, health insurance, fire and general insurance and also business risk advice for business owners.

* Retirement planning - including overseas pension advice for immigrants or expats.

* Cash flow management - including advice on budgets, debt management advice, and mortgages.

* Estate and tax planning advice - including the need for up-to-date wills, enduring power of attorney arrangements, and the use of family trusts.

"Our members cover the spectrum," says McMorran. "Some of them specialise in one or a very few disciplines, others provide a more comprehensive service to clients."

She notes that, "Clients approach advisers with a need they have recognised, such as planning for their retirement, but they are unaware of the potential needs they may have in other areas. An example is their personal risk protection needs which - if not addressed and they suffer a catastrophe - may mean their retirement needs cannot be achieved.

"We also believe that the financial advice process is more often than not long-term. Part of the process is not just to provide the initial advice and implementation but to regularly monitor that advice and recommend changes to the client's strategy as their needs and circumstances change throughout their life."

What about the problem of people's unwillingness to pay for financial advice? The fact that 38 firms of advisers say they work on a fee-only basis - see the Info on Advisers page on - shows at least some clients will pay for investment advice. And many of those advisers would also offer broader advice.

As the quality of advice hopefully improves under legislation taking effect this year, I expect more people will be willing to pay for it. While clients aren't financial experts, I reckon most can tell when they are receiving something of value.

Finally, I agree that it's a good idea for an adviser to discuss a client's broad strategy first, before looking at which products can best achieve the desired results.

Just one niggle: your choice of the word "partial", as in "partial advice", was unfortunate. I'm sure you meant "a part, not the whole", as opposed to another meaning, "unfair, showing favouritism" - probably the exact opposite of what you had in mind!

Mary Holm is a seminar presenter, part-time university lecturer and bestselling author on personal finance. Her website is Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

- NZ Herald

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