Our experience with investment-related complaints during the global financial crisis highlighted the fact that many complainants did not understand the products they were investing in, or the level of risk that came with the investment.
Every investment comes with some degree of risk. As a rule of thumb, the higher the return, the higher the risk. Consider the following when looking at where to invest your money:
Shop around for a financial adviser
Financial advisers have built up specialist knowledge and expertise you are unlikely to have. It pays to use one. However, advice can vary markedly from one adviser to another. They will also recommend different investment products. Look around before you settle on one.
Tell your adviser as much as you can about your investment goals and attitudes. The clearer your adviser is about your investment timeframe, goals and tolerance for risk, the more closely he or she can tailor the advice to your requirements. Be sure to insist on advice in writing. It should be easy for the average person to understand.
Know the types of advisers
Banks in our scheme employ two types of advisers offering personalised investment advice:
- qualifying financial entity advisers: Most advisers employed by banks are in this category. They can offer investment advice on simple investment products (such as term deposits) as well as more complex investment products offered by their employers (such as securities), but they cannot offer investment planning services. Most banks have qualifying financial entity status and are therefore responsible for the conduct of their advisers.
- authorised financial advisers: They can offer investment planning services. They also tend to offer advice on more complex investment products. Banks employ some advisers in this category.
The Financial Markets Authority website has a searchable list of both. Regardless of the type you choose, advisers are obliged by law to act with care and skill when giving clients advice.
Understand your investment
Understand where and how your money is invested and who is managing it. At the very least you should know:
- whether your money is invested in cash, fixed interest, property, shares or a combination of these
- whether your money is invested in managed funds or direct investments
- who the fund manager is
- whether your money is invested in New Zealand or overseas
- what industries your money is invested in or exposed to
- what the risks are.
You should also know how the investment earns a return. A term deposit, for example, earns interest as payment for the use of your money. Shares give you a slice of a company’s profits in dividends and share price growth. Property gives you rent and growth in the property's value. Other investments are more complex and can be riskier than they seem. Don't invest if you don’t understand where the returns come from.
Sort out fees
You will probably have to pay a fee for the advice. Find out whether:
- your adviser charges a fee to prepare an investment plan
- you have to pay a fee to implement the plan if you proceed
- you will have to continue to pay fees.
Some advisers charge a very small fee or no fee at all. That's because they make their living from commissions paid by providers of the products they advise their clients to invest in. These products may not be the best for your purposes. Alternatively, if they are employees, they put your money into products offered by their employer, and it takes fees out of your returns. Again, the products may not necessarily be best for you. Always tell your adviser to put in writing how he or she will be rewarded for the advice you receive.
Avoid on-the-spot decisions
Make a considered decision about where to invest your money. Impulsiveness has no place in such decisions. Take your time, read the information you've been given, including investment statements and the adviser’s disclosure statement, and make sure you understand the advice and reasons for it. Never hesitate to ask questions.
Consider asking someone you trust to look at the advice if you're an inexperienced investor. Ultimately, it's for you, not your financial adviser, to decide how you invest your money.
Get clear on duration of service
Some advisers' service ends when you hand over your money; others offer more than that. Find out what service you will receive beyond the original advice, such as performance reports and portfolio reviews. If you receive these, ask how frequently. And find out how else you can obtain information about your investment. Is it, for example, on the fund manager’s website?
Withdrawing your money
Make sure you know how long it will take to withdraw your money. This may not seem important at the time, especially if you are saving for retirement, but circumstances can change and you may want your money sooner than planned. The time can vary from several days to a month or more. Some investments are locked in until a certain date.
Consumers can complain to their adviser’s dispute resolution service if something goes wrong. It will be shown on the adviser’s disclosure statement. Alternatively, you can find it on the Financial Service Providers Register. You can also complain to the Financial Markets Authority, which has the power to take disciplinary action against advisers.
Take your time, read the information you've been given and make sure you understand the advice and reasons for it.
Bank's advice matched customer's risk profile
Tani wanted to invest $190,000 and earn $12,000 a year from it – a return of 6.3 per cent. The bank assessed Tani as being prepared to take a little more risk than a conservative investor and set up a portfolio containing various investments managed by different fund managers.CASE 2
Possible value fluctuation made clear in statement
Timoti invested in a superannuation fund sold through his bank. He made monthly contributions for the next eight years before selling his units in the fund. He received 3.5 per cent less money than he had put in.CASE 3
Advice led to portfolio imbalance
Kiri, who was in her 80s, met with one of her bank’s financial advisers to simplify her affairs. She wanted a low-risk, accessible investment that offered returns competitive with equivalent term deposits in order to supplement her superannuation. She also wanted to invest for less than three years, and for the bank to manage the investment.
Breaking a term deposit
A term deposit locks in funds for a fixed period of time, although usually at a higher interest rate than online, call or savings accounts. Banks do not legally have to allow customers to break term deposits, that is, give back the money early. Whether you can break your deposit will depend on the terms of your contract with the bank. In most cases, you can do so only if the bank agrees.
KiwiSaver is a retirement savings scheme. Everyone over 18 is automatically enrolled in the scheme when starting a new job. Anyone not wanting to be a member must opt out between the second and eighth week of being enrolled in the scheme. Full information is available on the KiwiSaver website.
This guide covers:
where to direct a KiwiSaver complaint
the main types of KiwiSaver complaints we rec…