Perhaps it’s just a demonstration of evolutionary theory in practice, but I find it fascinating that it can be the unexpected benefits of some new innovations that end up adding greatest value. The medical profession seems full of examples. One relatively recent case was the discovery of Viagra (Sildenafil). Although originally developed to treat hypertension (high blood pressure) it was during clinical trials that an interesting unexpected benefit was discovered. It was that unexpected benefit that caused Viagra to be one of the fastest selling prescription medicines in history. So, what does this have to do with financial advice? Well, back in the early 2000’s, when the Government was looking to encourage New Zealanders to save for their retirement, they sought advice from the accountancy profession and the funds management industry to find out what features any new scheme (which came to be known as KiwiSaver) would need if it was to be successful. The feedback they rec...

I guess that every profession has them – the questions that you are asked in a social setting, that seem quite simple but then rapidly lead to a ‘rabbit hole’ of discussion. For me that question is “how much money do I need to accumulate to retire comfortably?” The question is important, and it fits well with the logic of setting a destination before embarking on any journey. Much like the social setting, in this column I cannot provide specific or personalised advice, however, there are some questions, and a simple formula, that can be applied when trying to answer this question. 1. When do you want to retire? Or, as I now describe retirement, when do you want work to be optional? Some people might choose the current age of entitlement to NZ Super (age 65) but for others it may be earlier or later. This date not only sets the time frame for the accumulation of capital but also helps set the time frame over which funds may be consumed. 2. How long do you think you...

The recent announcement that the NZ Super Fund was considering investing in the Government’s proposed Auckland light rail networks has re-ignited calls for KiwiSaver to be used to fund local infrastructure investments. On the surface, the case for investment in long-term infrastructure assets appears compelling. Infrastructure projects are long-term, defensive investments that often come with monopolistic characteristics. Historically, many infrastructure projects have offered compelling rates of return. Auckland alone is estimated to need $7 billion in infrastructure spending over the coming decade as the city expands by the size of Tauranga every three years. 1 KiwiSaver, being a long-term investment vehicle with over $46 billion in funds, appears well placed to help fund these projects. But like many things in finance, when subject to rigorous analysis, cracks appear. There is no reason why infrastructure assets offer superior returns. Over the long-term, sec...

Last month I had the privilege of speaking at a friend’s funeral. Thankfully, in this case, it was the celebration of a full and highly successful life. As I reflected on the life of my friend it occurred to me that much of his success in life was related to his ability to forge strong relationships. Like a great many effective and self-aware people, he knew what he was good at – and he knew how to use the skills and talents of others in areas he wasn’t experienced. In my role as a Financial Adviser I frequently meet with people who find themselves at a junction in life that requires experience and knowledge they don’t have. Typically, at this point they have come into some money, perhaps from an inheritance or they acknowledge they need to start putting money aside for their retirement. These people need the expertise of a Financial Adviser, but financial advice comes in different shapes and sizes. Giving thought to what sort of a financial advice relationship best suits...

Why have so few employers chosen a preferred provider scheme? The March 2017 FMA KiwiSaver Annual Report showed that 20,004 employers have a preferred KiwiSaver scheme. As IRD records show that over 200,000 companies deduct PAYE, this suggests less than 10% of all employers have a preferred scheme. This is lower than was originally intended when KiwiSaver was first introduced. But is it leaving New Zealanders worse off or does it not matter? In the United States, United Kingdom and Australia, employers are required to select a licensed manager at the outset. In New Zealand it was contemplated that after an introductory period which was designed to build confidence in KiwiSaver, both employers and employees would transition from the default regime to selecting a scheme that best aligned with their objectives. Ten years on, this is exactly what has transpired, with employees at least. Of the 2.8 million 1 New Zealanders who have been enrolled in KiwiSaver 1 , only 16.4...

Does more choice make for better investment outcomes? I’ll start this month’s column with a question — does the vast range of breakfast cereal in the supermarket lead us to make an informed choice when it comes to our breakfast diet? In my case it only succeeds in leaving me standing blocking the supermarket aisle as I quizzically read the ingredients labels. Perhaps it is a by-product of our consumer society, but I suspect that we have been conditioned to think that more choice is better. I am not sure that this is always the case. I started to think about this issue recently when I heard that there were now 30 KiwiSaver providers offering in excess of 240 different KiwiSaver funds to the New Zealand consumer. Various analytical tools have been developed which allow you to compare KiwiSaver funds on such measures as performance and costs. These tools may be a starting point, but they are based on historical data and can lead to flawed hindsight based conclusions....

Just last week the Westpac Massey Fin-Ed Centre published the results from a study 1 tracking the financial literacy of New Zealanders. This study follows the same approach used by the world famous ‘Dunedin Study’  2 that is studying health outcomes. The study focusses on the financial literacy of approximately 230 New Zealanders born between 1990 and 1994. It started in 2012 and it plans to interview the same participants every five years until 2032. The second series of interviews occurred last year and it is revealing some interesting trends. The participants are now aged 24 to 28. The good news is that, contra to the stereotype of ‘Gen Y’, the group is making financial progress. Their level of participation in KiwiSaver is 89%, on average they have a healthy disrespect for debt and just over half of the participants had reported taking steps over the last 12 months to improve their money management skills. What I found most interesting from the results is...