Be careful not to scramble your nest-eggs

By Mary Holm

Money Matters


Q. In the New Year we will be realising a sizeable sum of money (about a million dollars) from a property investment.

We have some shares that we have bought ourselves and two other properties.

We have decided that we need some fund managers to help to balance our portfolio.

We thought we should put about $100,000 with each manager so we could compare results, and not have all our eggs in one fund.

What is the best way of choosing the fund managers? What information about their businesses should we expect?

We are not very knowledgeable about shares, but are learning as much as we can before we need to deal with this money.


A. With a profit like that, it could be argued that you don't need advice from anyone.

Every expert would say, though, that your portfolio does seem to be too property-ish. And you clearly recognise that.

But I'm not too keen on your strategy for seeking help.

Before we get to that, though, I think you're confusing fund managers with financial advisers.

Fund managers are the people who run unit trusts and other managed funds. They pool together lots of people's money and invest it in shares, property, fixed interest and cash.

Investors don't usually select a fund manager and then pick from among the manager's offerings.

Instead, they decide what type of investment they want - such as New Zealand property, international shares, or a mixture - and then choose a fund from those offered by many different fund managers.

Financial advisers (and I include stockbrokers here) are the ones who can help you balance your investments, assess how much risk you're comfortable with, and make sure your eggs aren't all in one fund.

Your plan to divide your money up and see who does best with it has a couple of flaws. Firstly, unless you tell each adviser what all the others are doing, you won't get balance in your total portfolio. And you'll end up in many different investments. It could all get pretty messy.

Secondly, comparing results is tricky. It's not fair to look at just a few years. Some of the best long-term performing investments are volatile, and might do badly for several years before coming into their own.

Also, looking at past performance isn't a reliable way of telling which investments will do well in the future.

I think you're better to put the effort into choosing one good adviser and sticking with her or him. For tips on how to choose someone, and what information to expect, read on.

Q. Would you please tell me if there is a list of members belonging to the Association of Investment Advisers and Financial Planners or the new Financial Planners and Insurance Advisers Association, similar to the stock exchange members' list. Where could I obtain such information?


A. Firstly, congratulations on getting those long names right.

Until a couple of months ago, there was also an Insurance and Investment Advisers Association. But now that it's merged with the first association you mentioned, there's just the one new outfit - the Financial Planners and Insurance Advisers Association, or FPIA.

For a list of FPIA certified financial planners in your region, ring the association on 0800 506 106. Or you can fax to 04 499 8064, e-mail to fpia@xtra.co.nz or write to Box 5513, Wellington.

It's a pity the new association couldn't come up with a shorter name. Much more important, though, is whether it fulfils its aim of lifting standards among financial advisers.

It sounds as if you already have a list of stock exchange members. Readers who don't can get one from the exchange at 04 472 7599, or fax to 04 473 1470, mail to PO Box 2959, Wellington, or visit the exchange's Web site, www.nzse.co.nz.

While we're on the topic, several people have written assuming I'm a financial adviser and wanting me to answer questions directly, rather than via the column.

Sorry, but I'm not in a position to do that work. Nor can I recommend advisers.

I suggest you get the FPIA and stock exchange lists, or look under Financial Planners and Sharebrokers in the Yellow Pages.

You might also get a copy of the Office of the Retirement Commissioner's booklet Your Retirement Action Planner, by phoning 0800 45 65 85 or by visiting the Web site, www.retirement.org.nz.

Under the heading "Where to Put Your Savings", the booklet lists questions to ask yourself before seeking professional advice, and some tips on selecting an adviser and a savings plan.

Choose some advisers to consider - including any recommended by friends - and phone and ask them to send you disclosure information about their service, including their qualifications and how they make money out of giving you advice. Don't feel awkward about that last question. Advisers are legally obliged to answer it, and should be used to being asked.

On the strength of what they send you, choose a few to meet. A good adviser should offer you a free first visit.

Insist on meeting the person you would work with, not the boss.

Take a more savvy friend with you, if you like, to help assess who's best.

Ask lots of questions about what the adviser could do for you. And make sure that you - not your friend - can understand what the adviser says.

Too often, people get confused by complex advice and end up going along with an investment plan without fully appreciating what they're getting into.

It's worth putting some effort into choosing an adviser. They're a mixed bag.

A bad choice now could leave you thousands of dollars worse off over the years. But a good choice could make you quite a lot wealthier than if you struggled along on your own.

Q. I have just received my income tax assessment and find they have altered my overseas tax credits from $1128 to $980.

These were dividends from Westpac, AGL and J. Hardie, and the credits claimed were as shown on the dividend vouchers, which varied from 33 per cent Westpac, 15 per cent J. Hardie and 5 per cent AGL, averaging 23 per cent.

The department has only allowed 20 per cent. The booklet says the allowable claim is the lesser of the actual and the amount of tax you would pay in New Zealand "on the same amount of income".

Since my New Zealand dividends are taxed at source at 33 per cent, I expected my returned figures to be accepted - as I think they always have been in the past.

Have they changed the rules - or just the interpretation of the rules? Or are they hopefully in error? If one looks at the rule book, it says: "the same amount of money". What does this mean?

If I subtract my gross Australian sourced income from my gross returned income we get $31,403. Is this what they mean by the same amount? If so, the allowance should perhaps be partly at 20 per cent and partly at 22.875 per cent.

There must be many in this state of confusion.


A. Sorry, but I think you're stuck with the lower credit. The rules haven't changed, and there doesn't seem to be an error.

The taxation of overseas dividends certainly can be confusing. And you've got all caught up in ghastly stuff like 22.875 per cent tax rates.

But the rule that has affected you is actually quite straightforward.

Under the Tax Act, Inland Revenue calculates your total tax payable on your total income - including overseas dividends. From there, it works out your average tax rate.

Because everyone pays lower tax on the first dollars earned, rising to 33 per cent on income over $38,000, everyone's average tax rate is lower than 33 per cent - although for millionaires, it's getting pretty close.

From what you've said, your total income is around $36,300. Tax on that is $7,320, so your average tax rate is just over 20 per cent. That's what the IRD has applied.

You say your numbers have been accepted in the past. But perhaps your Aussie tax credits were a bit lower, or your other income a bit higher.

This time, I'm afraid, you've paid the Aussies a little more than our Government will give you credit for.

P.S. Yes, the man you knew was my father. Thanks for the memories.

* Got a question about money? Send it to Money Matters, Business Herald, PO Box 32, Auckland; fax:
(09) 480-2054; or e-mail: maryh@journalist.com.

Letters should not exceed 200 words. We won't publish your name, but please provide it and a (preferably daytime) phone number in case we need more information. We cannot answer all questions or correspond directly with readers.