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OPINION
Q: My wife was doing a clean-out of an old file cabinet and discovered a share certificate in my daughter's name for 800 A Ordinary Shares in Air New Zealand. The certificate is dated February 1998.
There has since been a 5-to-1 split so that should be equivalent to 4000 shares — and 4000 at 71 cents a share equals $2840. Is an old, paper share certificate still valid? Will our daughter be able to take me to the pub?
Even if the certificate is worthless, it looks nice.
A: Perhaps frame it and give it to your daughter for Christmas. And yes, she might be able to shout you — and your wife given she made the discovery — a drink at the pub. You might even get a meal thrown in, but not much more than that I'm afraid.
"The certificate itself is no longer valid, as these types of certificates were replaced by electronic transaction statements in 1999," says an Air New Zealand spokesperson.
"However, any shares she held at the time of the replacement would have transferred into her name."
The only trouble is that the 5-to-1 stock split was actually the opposite — a consolidation.
"Shareholders got one share for every five on register in 2004. Therefore, if she still held shares at that time, she would only have 160," says the spokesperson.
Since you wrote, the share price has risen, to 78 cents at the time of writing. So the holding is worth about $125.
Your daughter's first stop should be with Air NZ's share registrar, Link Market Services — unless she has sold the shares in the meantime, in which case Dad might have to do the shouting!
Q: I worked for a financial adviser company, on an $80,000 admin salary. At 65 I felt pressured to follow their "new retirement strategy": using all of my KiwiSaver to pay the mortgage on my one-bedroom apartment home, then borrowing to invest $400,000, along with the remainder of my savings.
I said the loan amount was shocking and it was all well beyond my comfort zone. I was assured that the company director had personally approved this for me and I couldn't lose the amount I'd borrowed, as their company insurance would cover it. I agreed to a two-year loan, saying longer would be too stressful for me.
The loan is due in February. The portfolio has lost $150,000 — all of my savings and a quarter of the loan. Now the company director says he didn't approve this strategy for me, would only have approved half of this and their insurance will not cover any losses. Should I sell up now and at age 67 take on a loan to repay the bank from my NZ Superannuation payments? Should I wait out the full loan term and then do so? Should their company insurance pay as promised?
A: Hold off before taking any drastic steps. You shouldn't have been led into this situation. There's help available for you, and it's free.
"This case raises concerns for me. For a start, I would have thought there was a conflict of interest in her employer giving an employee financial advice," says Susan Taylor, financial ombudsman and CEO at Financial Services Complaints Ltd (FSCL).
FSCL is one of three dispute resolution schemes that handle complaints about all financial services firms except banks. The other two are the Insurance and Financial Services Ombudsman Scheme, and the Financial Dispute Resolution Service. Banks have the separate Banking Ombudsman Scheme.
Taylor adds, "I think she should consider making a complaint to the company's disputes resolution scheme."
You may want to wait until February, though, when you'll know how big your loss is. It's even possible the markets will recover, and you'll make a gain. Stranger things have happened.
In the meantime, Taylor says, "She could start the ball rolling now by making a complaint through the company's internal complaints process. It's a legal requirement for all financial advisers (and all financial service providers) to have an internal complaints process and to keep proper records of complaints.
"It appears that her former employer gave her financial advice and she is entitled to the same consumer protections as any other person. They may say wait until February, because the loss can't be quantified yet. However, the sooner she puts the firm on notice that she has a complaint, the better."
If you're not happy with how the firm handles your complaint, go to their disputes resolution scheme. The firm's website should tell you who that is, or ask the firm.
Taylor adds, "Finally, there's no insurer that I know of that would cover investment losses, otherwise we'd all have policies!"
Another thought: I wonder if a bank should have loaned you the money to invest. These days, banks have to comply with responsible lending obligations, and this was high-risk lending. You should also consider complaining to the bank.
I suggest, though, that you deal with the adviser firm first. Then complain to the bank. If you are unhappy with the bank's response, go to the Banking Ombudsman Scheme.
This might all sound a bit daunting, but you must fight for your financial future. All the disputes resolution services will help you through the process, and their services are free. Please let me know how you go.
P.S. I'm a director of FSCL, and used to be a director of the Banking Ombudsman Scheme. I'm promoting them and the other disputes resolution schemes here because they can help a lot of people.
Q: In your column two weeks ago, you mentioned having 1, 2, 3 and 4-year term investments. Would you recommend only bank deposits, or are finance companies an option, depending on their rating? If so, what rating would you deem acceptable?
A: Ever since the global financial crisis, when investors in several New Zealand finance companies lost all or most of their money, I have suggested people stick with term deposits issued by banks.
Finance companies pay higher interest than banks for a reason. They are riskier, and nobody wise would invest in them unless they got a higher return. If you want to increase your returns, I've suggested high-grade bonds or a fund that includes shares.
But is it time I changed my tune? These days, finance companies are more closely regulated by both the Reserve Bank and the Financial Markets Authority (FMA). And the Non-bank Deposit Takers Act of 2013 and other legislation has tightened the rules.
Finance companies are now supervised by trustees and have to issue product disclosure statements — which every would-be investor should read. These documents are fairly short and written in relatively simple language.
But first, check whether a finance company is on the Reserve Bank's register of non-bank deposit takers, at tinyurl.com/NonBankNZ. The list includes each company's credit rating — if they have one. Some companies are exempt because they are small. I would give them a miss.
Currently, the highest credit rating on the list is BBB-, which is the lowest of "investment grade" ratings. BB and B ratings are below that, in what are called "junk or sub-investment grades".
There are explanations of the ratings on the Reserve Bank website and interest.co.nz.
Let's just note here what the FMA says: "Be careful of any investment that's been rated less than an 'A'. In most tests, a grade 'B' is considered good. This isn't the case for credit ratings. As shown in RBNZ's standardised rating scale, an 'AAA' rated company has a much lower risk of default (1 in 600 over five years) compared with a 'B' rated company (1 in 5 over five years)." What rating is acceptable? Sorry, but it's up to each person to decide.
The story will change in a year or so, though. Under the proposed Deposit Takers Act, which will insure people's bank deposits of up to $100,000, some non-bank deposits will also be covered. The non-banks — finance companies and the like — will probably pay higher levies to cover their higher risk.
When that act is in effect — expected to be in early 2024 — I'm sure more people will be comfortable investing in finance company term deposits that have this insurance.
Q: I've recently switched to an aggressive managed KiwiSaver fund (Booster's Geared Growth Fund). However, I have just learned that a 0.5 per cent adviser trail fee is built into the annual management fee.
This is ostensibly to provide external financial advice to all Booster KiwiSaver members, but is paid by the members whether the adviser service is taken up, and there is no opportunity to opt out.
I was expecting a high fee for this fund (1.76 per cent a year), however I am disappointed that 0.5 per cent, a significant portion of total fees, is for financial advice I don't want to use.
I understand the FMA is not enthusiastic about trail fees, and it was not initially clear that this was part of the total fee. Is this common practice? In the meantime, I think I'll have to find another fund!
A: The official word from Booster is that payments it makes to financial advisers are not included in the management fee you pay.
"We do believe it is important that clients are able to access quality advice. To enable that we partner with financial advisers and Booster funds the provision of advice. If advisers are receiving payment from us they disclose this to clients," says a Booster spokesperson.
This is despite your sending me correspondence from two Booster employees who say the adviser payments are included in the fee you pay, and that you can't opt out and therefore pay a lower fee.
Asked about this correspondence, the spokesperson said, "It looks like we've got a bit of a job to do bringing up the level of understanding of how this works amongst our frontline staff and to make sure it's communicated correctly to customers. For this I do apologise."
Okay, I said to her, "But I'm still a bit confused. If the money that Booster pays to advisers doesn't come out of fees paid by investors, where does the money come from? Does Booster accept lower profits than other KiwiSaver providers that don't work with advisers?"
Her reply: "You've picked up on a good point and something which seems unique to Booster. I don't know about the profits of others of course. But I do know our fees are comparable to industry while we are also providing advice (and a package of other extra benefits).
"We can do that because we are willing to pick up the tab for these benefits. This has always been our approach so we can make sure we deliver great value to our members." What does the FMA think about this?
"We cannot comment on individual scenarios, but we have made our expectations clear about fees for advice," says a spokesperson.
• "The FMA is fully supportive of New Zealand investors getting the help they need to make good investment decisions and good advice is valuable.
• "Our preference is the fee charged for advice is separate.
• "We understand, however, that until KiwiSaver matures further, a lot of balances are modest and even a moderate, ongoing charge for advice could push people away from getting the help they need.
• "So while we expect providers to move toward a separate fee, we accept the practice of embedding the cost of advice in fees paid by investors.
• "But regardless of how fees are structured (separate or embedded), advice should be received, not just offered; advice should be ongoing — at least annual — not just at on-boarding; the fee for advice should be reasonable; and the fee for advice — the sum, and who receives it — should be disclosed to and discussed with members."
Hmmm. I dare say there are some interesting conversations between the FMA and Booster.
By the way, despite what was said above, fees on Booster's Geared Growth Fund are considerably higher than on most KiwiSaver aggressive funds, which charge average fees of 1.07 per cent, according to the Smart Investor tool on sorted.org.nz.
Investors in your fund also pay an interest cost, because the fund uses gearing, as explained in this column last September 3. So yes, you might want to shop around.
- Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s 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. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
'Debt becomes more like a rent payment that people get so used to paying.'