By MARY HOLM
Q. This is a query on conveyancing costs for a sale and purchase of property.
First, is there a standard scale of fees for buying and selling?
We have sold and bought property and the legal fees seem to be rather high. In fact, our accountant went so far as to say they were "a joke" and we should question them.
Basically we sold a property for $1.5 million and bought one for $490,000.
There was a delay in settlement by the purchasers of our property, which had to be chased up. And there was also the discharging of a mortgage with our bank. But essentially it was a straightforward transaction.
There was no mortgage to set up for our purchase. The fees charged total $15,250 excluding GST. Do these fees seem reasonable?
A. They don't just sound steep to me, they sound precipitous.
Just to be sure, I read your letter to a lawyer who does lots of conveyancing work.
The response: "When people say it's all straightforward, that sometimes irks us. There can be lots of additional costs from a delay."
It's possible, then, that the fee is justified.
Still, the lawyer agreed that $15,000-plus seemed high, and referred me to Fergal McGeown, cost administrator of the Auckland District Law Society.
He, in turn, sent me a copy of the society's brochure on fee revisions and the following advice: "Persons with problems regarding a lawyer's accounts should first try and resolve the issues with the lawyer involved.
"If the matter is unable to be resolved, then they may request a fee revision from the district law society."
It sounds as if you should first follow your accountant's advice, and ask for a cost breakdown and discussion with the lawyer.
If that gets you nowhere, get in touch with the cost administrator at your local district law society.
Note that there are some limits on what the society can do.
If you've actually paid the bill, the society can't do a cost revision unless ordered by a court.
You're okay, though, if the money was deducted from an amount held by the lawyer on your behalf, which is often what happens in conveyancing.
Also, it's best to act within six months of receiving the bill. If you got the bill six to 12 months ago, the society may still do a cost revision if it thinks you have a good reason for the delay and it considers the fees to be high.
Even after a year, there's still hope. But you have to get a court order allowing the society to do a revision.
The revision process is free. One more thing: you asked if there is a standard scale of fees for conveyancing.
No, there isn't. If there was, I suspect the Commerce Commission might be interested. Lawyers could be colluding, to keep prices up.
To get an idea of market prices, though, you can always ring a few lawyers and ask what they are likely to charge for your transaction.
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Q. Can you tell me (and your readers) why the American share market is usually reported against the Dow Jones index, which I understand is made up of about 20 top companies, rather than the S&P500?
As a mug reader it would seem to me that the latter represents a more accurate reflection of the pulse of an economy, because I assume it covers a wide range of business types.
A. The news media report the Dow Jones Industrial Average because, as the authors of one of my textbooks say, it is "the most widely quoted [index] by professional investors and taxicab drivers".
And professional investors and taxi drivers quote it because the media report it.
That doesn't get us very far. So I turned to Business Herald editor Jim Eagles.
As you've probably noticed, the Business Herald reports the Dow on its front page, and it uses the Dow for the little graph that goes with the US share price table.
But under "World Indices", the Herald also gives the Nasdaq and the S&P500 indexes.
Why the greater Dow coverage? "Historically, it's been the index the Herald uses," says Eagles. "For all its faults, it's still arguably the most widely quoted index in the world."
Sounds like much the same circular argument. It's quoted because it's quoted. But wait, there's more.
"The other [indexes] are there for the more discerning," says Eagles.
Okay, so let's all become more discerning.
For starters, what is so wrong with the Dow?
It was made up of 11 stocks when it first appeared in 1884 in a daily letter issued by Dow Jones & Co, publishers of the Wall Street Journal.
These days, it has broadened its coverage to 30 industrial companies, selected by a Wall Street Journal committee. They include familiar names such as 3M, American Express, Boeing, Coca-Cola, Eastman Kodak, General Electric, General Motors, Johnson & Johnson, McDonald's, Microsoft and Walt Disney.
Sounds fairly varied, but it's not really. It's true that "industrial" is these days defined broadly, but there are still sectors of the US economy that aren't represented.
What's more, all the companies in the Dow are huge, with sales of more than $7 billion a year.
If other sectors are doing better or worse than industrial companies, or if small companies are doing better or worse than large ones, those variations won't be reflected in the index.
Also, its computation has been much criticised. Basically, it's an unweighted arithmetical average of the prices of the 30 stocks.
A 10 per cent rise in the price of a $100 Dow stock will have twice the effect on the index as a 10 per cent rise in a $50 stock. Yet there might be a much smaller number of the $100 stocks on issue than of the $50 stocks.
There are other computation concerns too, which are too technical to go into here.
How about the S&P500, compiled by Standard & Poor's?
It covers 500 companies, so the range is much wider. They are pretty much the biggest 500, although the selection committee also takes into account liquidity and industry representation.
The S&P500 is weighted according to each company's market capitalisation, which is the value of all of its shares.
A movement in the price of the company with the biggest market cap, currently General Electric, has the most influence on the index. The next biggest, and therefore next most influential, are Microsoft, Pfizer, Exxon-Mobil and Wal-Mart Stores.
It's all much more logical than the Dow - no doubt partly because the S&P compilers had learned from past mistakes when they first published the present S&P500, in 1957.
Still, it is criticised - although much less than the Dow - for being top heavy. The top 10 companies make up 23 per cent of the weighting. And the whole index covers only the bigger end of the market.
Enter the Russell 3000 index. As you might expect, it covers the 3000 biggest US shares, or 98 per cent of "the investable US equity market".
Basically, it's weighted by market capitalisation, like the S&P500, but with some refinements.
Russell, an investment services firm, also compiles the Russell 1000, which covers the biggest third of the Russell 3000, and the Russell 2000, which covers the smaller two-thirds. The 2000 is often quoted to show how smaller US shares are faring.
The Russell indexes aren't listed in the Business Herald. But you can get info on them on www.russell.com. (And yippee for them, they say "indexes" not the obscure "indices".)
Before we get too carried away, though, it's worth noting that the performances of the Dow, S&P500 and Russell 3000 don't vary much one from another.
That's largely because all of the Dow companies are not only in the other two indexes, but are pretty dominant in them.
Also, there is a surprising amount of correlation between movements in the share prices of big companies and smaller companies.
When the Dow plunges, the prices of many of the other 470 S&P500 shares and the other 2970 Russell 3000 shares will also fall. And when the Dow soars, so will many of the littler shares.
Still, to quote James Lorie and Mary Hamilton, who wrote my textbook The Stock Market, Theories and Evidence: "Although long-run movements are similar, indexes may differ markedly over short periods of time."
Perhaps, if we push hard enough, all the news media would quote the Russell 3000. I'll start on Eagles, the rest of you can gang up on other business editors.
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Q. I am one of countless pensioners whose portfolio has lost out in the last two to three years.
I have been a client of a financial adviser for the last few years. By May 2001 my portfolio was worth $275,000. Today that figure is $206,000.
The fee that I pay for his service is $250 a month. Now that the value of my portfolio has gone down, would I be justified in asking for a reduction in his fee?
I regard him as a friend, and don't want to upset our relationship, but I admit I feel slightly peeved at having to pay 20 to 25 per cent of my investment income for his services! Am I being unrealistic?
(Second email, received a week later:) I saw my financial adviser this morning.
When I mentioned my grouse re his fees, he immediately picked up his calculator, keyed in some figures - and announced that as from now (and for the next year) his fees would be $189, instead of $250, monthly. In other words I shall save almost $750 a year, and that can't be bad.
So, now that my problem has been solved, I can't see any point in getting my letter published. Can you?
A. Yes, I can. (And in case others are wondering, I got the reader's permission to publish both messages.) From time to time, people suggest that financial advisers' compensation should be based on their performance.
You've done that, cutting your adviser's income from you by 24 per cent.
I think that's plenty. We can't expect good people to become advisers if their income is too uncertain. After all, it's not their fault that world shares have performed so badly.
And while good advisers should have warned their clients that all share investments lose value at times, nobody predicted such a long bear market.
Still, it doesn't hurt for advisers to share in their clients' losses to some extent.
The best way for advisers to charge, in my opinion, is an hourly fee. But your adviser's system is second best.
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Or post it to:
PO Box 32, Auckland