Mary Holm: It may not pay to jump ship

If your investment ship is sinking, it may be a good opportunity to embark on a different one. Photo / Flickr

In 2007, as part of a medium-term strategy for my retirement, I invested a considerable sum with ASB Unit Trusts. The sum invested was spread over the following trusts: Money Market, NZ Fixed Interest, NZ Property, NZ Shares, World Fixed Interest and World Shares. This conservative, diversified spread, I believed, would yield a good return over the medium to long term and was a safe investment.

How wrong I was.

After just three years my investment is now worth 12 per cent less. Following my initial investment, the value of my portfolio never again reached the starting level and fell more than 18 per cent at one point. I was naturally concerned, but understood the effect that the global financial crisis was having on the markets. However, I felt that as I was in for the long term my investments would eventually come right and was prepared to sit tight.

Wrong again! I have now received a letter from the ASB advising that the various trusts are to be wound up on 30 September, 2010. How can ASB arbitrarily do this? This investment strategy was meant for the medium to long term. Three years can hardly be classified as that.

I have also read ASB's press release where it says, "The amount of money in the funds had been reducing over time as investors had transferred to more modern alternatives". This certainly does not apply to me. I have never received any communication with respect to my ASB Trusts apart from regular statements. No one from ASB, at any time, has advised me to move my money to "more modern alternatives". This is just PR claptrap.

Surely ASB should be held accountable for the loss of my capital.

You can be sure that ASB took its fees during this period. The letter from ASB statesit will "be sending me alternative investment options that I may wish to consider". I will certainly not be putting any more money with the ASB.

ASB Group Investments can, indeed, close these unit trusts, says Stewart McRobie, ASB's chief executive relationship banking. "As with all unit trusts, the investment statement specifies the circumstances under which a fund can be closed."

The important point that you seem to misunderstand - and perhaps it's ASB's fault for not making it clearer - is that if you transfer to another similar ASB fund or funds, it should make little or no difference to you.

"Some of the new funds also offer a simpler diversified investment, which a lot of our customers say they want," says McRobie. And you won't be charged any exit or entry fees.

As far as your investment losses are concerned, you'll buy into the new funds at the same time as you're exiting the current funds, so your position in the market shouldn't change.

There's nothing to stop you simply picking up where you left off, maintaining your nicely diversified investments until retirement. It's a bit like changing ships partway through a voyage, and finding that the new vessel is at least as good as the old one, and quite likely better.

If you don't want to stick with ASB - and it does sound as if they haven't communicated well with you - you could achieve much the same result by moving into similar funds run by another fund manager.

Quite apart from your situation, there's another issue here. Could ASB be playing a game we sometimes hear about, in which a fund manager closes down funds that have been hit badly in a market downturn, and then starts new funds at that low point? They get rid of the dross, and the new funds are likely to grow fast from a low base.

McRobie denies this. "We're not doing it to try to show better returns," he says. For one thing, ASB Group Investments hasn't opened any new funds lately. "The funds we can offer investors as an alternative were set up in 2007."

At that stage ASB stopped marketing the funds it is now closing. Since then, "We've been maintaining those funds with a significantly shrinking number of investors, with all the compliance and other costs. We are a business," he says.

Sounds reasonable. No fund manager can be expected to continue all its funds forever. In the end, if ASB was to keep running what McRobie calls "sub-scale" funds, that would probably result in higher fees. Who needs that?




Due to my super fund closing down, I am considering what to do with the early windfall of cash.

This fund was effectively a "balanced" plan, with equal parts in conservative, balanced and growth portfolios. As my KiwiSaver is currently all going to growth - as that is still 15-plus years from maturity - I am considering placing this windfall into term deposits, split in five equal lots for one, two, three, four and five-year terms, and reinvesting the interest in each one. As each one matures I roll over to the current rate for the term.

I note the current yields favour longer terms, but I have seen them in the reverse, so I thought spreading my investments would let me ride out the variability over the long term.

I have read some reports that interest is going to rise in the future, and the direction of the yields for the longer terms implies this as well.

Is this a good idea?

It sounds as if you are in the same boat as the previous correspondent - but a much happier sailor. You see the closing of your fund as an opportunity to change tack.

If you move your money to term deposits, you are considerably lowering your risk - and probably your returns over the years. But if you're worried about your higher-risk KiwiSaver fund, it might be good to water down your total risk.

Your term deposit plan is sometimes called laddering. And yes, it is a good idea. Setting up your investments so they mature at intervals keeps your money fairly accessible and, as you say, it gives you exposure to changing interest rates over time.

Some of your investments will be at low rates, some at high rates - which is probably as good as it gets, given how hard it is to forecast interest rates.

You've noticed that longer-term rates are higher than short-term these days, but that doesn't necessarily mean rates will rise. Even if banks expect rates to stay flat or dip a bit, they will usually pay more to have the use of your money for a longer period. It's only when banks expect a considerable rate drop that longer-term rates are lower.

For that reason, you might want to adopt a common feature of laddering. You start out with investments for one year, two years and so on, but as each deposit matures you renew it for five years. You still get the staggered maturities, but after a while all your investments are longer-term, so you will probably generally receive higher interest.

Another way to increase your interest income would be to use investment-grade corporate bonds. However, they are somewhat riskier than term deposits.



Without doubt you ARE a financial adviser, in spite of what you said in your last column. Brian Gaynor says so, the Listener says so (although I note that it is now calling you a commentator), and the Herald at the bottom of your column says that you give advice. You use the phrase "investors should ... " and you give prescription as well as commentary.

If it walks like a duck and quacks like a duck then it is a duck. Let's face it, no matter how you try to weasel out of it by using a legal technicality, you are a de facto financial adviser and you appear to be the last to know about it. You ARE "inside the tent".

You shouldn't be exempt from adviser obligations to have the required qualifications and to keep them up to date. This includes achieving the Unit Standards Gaynor mentions. Even a commentator has to know the rules of the game.

By the way, what are your qualifications and how old are they?

I'm a bit confused, and it's not just over what other people think I do for a living or what tent I'm inside or outside. There's also the animal question: am I a duck or a weasel?

However, I am clear about what I actually do for a living.

Writing advice on medical issues doesn't make someone a doctor. Nor does writing advice on legal issues make someone a lawyer. It's a pity there's not a more distinct term for financial advisers, but giving advice on financial issues doesn't make me one of them.

In common parlance, and broadly speaking under the new law, a financial adviser is somebody who is paid by a client - either directly or through commissions on the client's investments - for giving the client financial advice.

I do give advice in my columns, but the recipients don't pay for it. Furthermore, I don't know any more about the recipients than the brief information in their letters, so anyone with any sense must realise my advice is "of a general nature", as stated at the bottom of my columns. The idea is to help not just the correspondent, but many other readers. We're looking at principles, not details. It's just not the same as an adviser's advice.

Despite this, I could still get the qualifications to be an authorised financial adviser. But, as I said last week, I would then be bound by a code of conduct that would limit what I say about advisers. It's important to me - and I hope to readers - that I don't lose the freedom to criticise.

My qualifications? I have an MBA in finance from the University of Chicago. It's one of America's top business schools, with several Nobel laureates on the faculty, and I graduated in the top 15 per cent. I also have an MA in journalism from the University of Michigan - another highly regarded course. Note the subject. I am a journalist.

The MA was in the 1970s and the MBA in the 1980s, but I have been a financial journalist ever since. And there's nothing like interviewing the experts, attending workshops and conferences, and researching for articles and books to keep on top of the subject.

I think I could probably manage the financial adviser exams. I just don't want the qualification they lead to.

Mary Holm is a freelance journalist, part-time university lecturer, consumer representative on the board of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. 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 mary@maryholm.com 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.