Bank's advice may pay off - one day

By MARY HOLM

Q: I am not happy! I believe your advice on investing in shares can be summed up as follows: check the risk profile, invest for the long term, use passive funds and spread your investments over time.

Letters in your column in the past few weeks have highlighted cases of recent losses on share investments.

About two years ago, my parents went to a bank and asked for investment advice for a reasonable sum of money.

The recommendation was to invest half in a bond unit trust and half in a share unit trust. Needless to say the value has reduced considerably.

My parents are now four and five years from retirement. I am not happy because they were recommended an investment in shares that didn't meet their risk profile, didn't meet their time frame and they were not advised to make their investment over time.

Could you please let me know how I can sue the bank for incompetence? Could you also send this message to investment advisers: your profession is in danger of falling below that of used car salesmen if you do not start giving appropriate advice.

Thank you for letting me blow off some steam. I feel much better now.

A: You might feel better still when you learn that your parents may be able to get back some, or all, of what they have lost.

But, first, a couple of other points:

* Your summary of my advice on share investment is excellent.

* The advice the bank gave to your parents is not all that bad.

For one thing, they put only half their money in the share fund. The bond fund is probably quite suitable for them.

Also, at the time they were six and seven years from retirement. I think it's best to have 10 years in hand when you're making a share investment. But six or seven years is not too bad. It's pretty unusual for a share investment to lose money over that period.

What's more, your parents presumably won't want to spend all of their savings when they first retire.

They could use up the bond fund money for the first few years and not touch the share fund money for a decade or more - during which time it would be highly unlikely not to grow.

Having said all that, it sounds as if your parents weren't warned sufficiently that the share fund balance will sometimes fall, perhaps a long way, as it has in its first couple of years.

If they had understood that, and felt they couldn't cope with it, the adviser should have kept them out of shares, or perhaps put them in a balanced fund holding some shares but also lower risk investments.

But he or she didn't. So what can you do about it?

As far as suing the bank is concerned, an editor once said to me, anybody can sue for anything. What you have to look at is how likely they are to succeed.

I'm not saying you wouldn't succeed. But even if you do, lawsuits are expensive, time-consuming and worrying.

I've got a better idea. Your parents could use the free services of Liz Brown, the Banking Ombudsman.

First, they must complain to the bank. If they're not satisfied with the outcome of that, they can take the matter further.

They should ask the bank for information about its internal complaints process, or they can visit the Banking Ombudsman's website, www.bankombudsman.org.nz.

Brown says she has received an enormous increase in complaints about investment products in the past six months.

"If a customer was poorly advised - in terms of the Consumer Guarantees Act they were sold a product that was not suitable for their needs - I can require the bank to make good their loss."

That might mean restoring your parents' investment to the amount they put in, and also paying what interest they would have earned if they had left the investment where it was before they received the advice. The maximum loss Brown can deal with is $120,000.

In making her decision, Brown would take into account such issues as whether the adviser gave your parents investment statements about the unit trusts and other information required under the Investment Advisers (Disclosure) Act.

"I also look at what information the customers gave the bank about their requirements, and what the customers did when they realised the investment was not what they thought it was," says Brown.

There's another possible course of action, and that is to just hang in there. Your parents have a few years to play with.

If they could bring themselves to tie up the share fund money for 10 years, and try to ignore what happens to the balance in the meantime, they could well end up better off than if they switched to, say, term deposits now - even if they were to get compensation from the Banking Ombudsman.

* Mary Holm is a freelance journalist and author of Investing Made Simple. Send questions to Money Matters, Business Herald, PO Box 32, Auckland; or email: maryh@pl.net.

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