NZ Herald 13 June 2015

AI like your fishing analogy. If you invest through crowdfunding, you might catch a big one or a tiddler, but there’s also a fairly good chance you’ll catch nothing.

Let’s take your last question first. Says FMA General Counsel Liam Mason, “The FMA regulates and monitors the licensed crowdfunding service providers.” Currently, the licensed providers are Crowdarm, Equitise, My Angel Investment, Pledgeme and Snowball Effect. “We do not monitor the companies using the platform to issue shares.”

However, he continues, “we are able to use the fair dealing provisions of the Financial Markets Conduct (FMC) regulations to take action where we find that a company issuing shares has misrepresented or provided misleading information to investors.”

So were the comments in the samples you sent with your letter misleading? Mason doesn’t think so, and adds, “asking investors to ‘spread the word’ is not in itself a breach of legislation under the terms of the FMC Act.”

And Anna Guenther, who describes herself as Pledge Me’s chief bubble blower, defends the practice.

“We encourage campaign creators to keep their crowd updated, which if done through PledgeMe generates emails out to pledgers and followers (users can unsubscribe).

“This isn’t asking their crowd to give financial advice, it’s just asking people to share the campaign wider — which is one of the reasons why companies are attracted to online equity crowdfunding platforms, the ease of sharing information.

“Not all companies run competitions during an equity crowdfunding campaign,” she says. But “all platforms encourage people pledging on their campaigns to share the link to the campaigns they support.”

“The whole point of this approach is that you bring in your crowd.” Crowdfunding “can help build an army of customers turned investors. These new investors become brand ambassadors. Investors in equity crowdfunding campaigns are often motivated by more than just the potential return.”

Nevertheless, it’s important that anyone who invests in a company via crowdfunding understands what they’re doing.

Typically the companies are “start-up or early-stage businesses, so their financial track record and business prospects will be much less clear than listed companies,” says Mason. And the disclosure rules aren’t as strict as for companies listed on the NZX stock exchange.

“The service providers must ensure that they provide sufficient information about the companies that issue shares through their websites. The service providers must also display a prominent warning on their site that this a high-risk form of investing,” he says.

And anyone who wants to invest in a company through crowdfunding “must come back to the service provider’s website to make that investment, where they should see prominent warnings about the risks involved.”

Adds Guenther, “Every equity crowdfunding page on PledgeMe has the legislated warning statements about risk, and pledgers will see these multiple times during the pledging process. By signing up to be an investor you must read and agree to terms, which clearly point out the risks involved in equity crowdfunding.”

While you might think the government should be tougher, there’s a counter argument — that New Zealand needs to further develop its capital markets. “As well as encouraging new and innovative ways for companies wanting to raise capital, licensed crowdfunding platforms offer new opportunities for investors,” says Mason.

What about your concerns about friends giving financial advice? “We would be concerned if people considered their friends’ opinions about investments to be a substitute for professional financial advice. For someone to purport to provide advice they must be in the business of providing advice and registered or authorised to provide that service,” he says.

He adds that the FMA encourages people to seek proper financial advice when considering a crowdfunding investment.

I hope would-be investors take note of that. I share your concern that newcomers to share investing could be dazzled by crowdfunding marketing. Nobody should invest any money through crowdfunding that they can’t afford to lose. Nor should they count on being able to sell their shares quickly at a reasonable price, even if the company is doing well.

For more FMA info on crowdfunding see tinyurl.com/nzcrowdfunding.

Finally, a very important question. Does Guenther chew bubble gum all the time? Her reply: “Only when I’m drinking bubbly :)”

AYour idea would work brilliantly if you knew when the markets were turning downwards. If only!

Trouble is nobody can tell when a market trend is changing. If prices fall for more than a couple of days, that might be the start of a plunge. Or it might be just a dip on a track that climbs further upwards. By the time you’re sure it really is a major downturn, prices will probably have already dropped lots. Sometimes, they plunge in minutes.

Hugely successful American financier J.P. Morgan was once asked, “What will the stock market do, Mr Morgan?”. His reply: “Fluctuate.” If he can’t do better than that, I’m afraid I doubt if you can!

A basic rule of investing is: Don’t try to time markets. You probably won’t win.

So what should you do instead? Firstly, work out whether a growth fund is best for you — in all market conditions — by using the “Find the right type of fund for you” feature in the KiwiSaver Fund Finder on www.sorted.org.nz.

That tool looks at how long you have before you plan to spend the money — the longer the time, the more suitable a riskier fund is. It also looks at your attitude to risk. Anyone who invests in a growth fund must be prepared to see their account balance sometimes fall a long way, and not panic and bail out into a lower risk fund at that point. Bailers are often big losers.

But if you stick with a growth fund through thick and thin, you will almost certainly end up with more over the long term than in a lower risk fund.

If you decide you are definitely a growth fund man, the next question is what proportion of your pay to put into the fund.

Generally, I recommend contributing only 3 per cent to KiwiSaver. You’ll get your employer’s 3 per cent and — as long as you earn more than $34,762 a year — you’ll get the maximum $521 tax credit.

By all means save more than 3 per cent in total. It’s a great idea. But perhaps put the extra elsewhere, so you can withdraw it should you need to. If you like the way your KiwiSaver fund invests, ask the provider if they offer a similar non-KiwiSaver fund and set up an automatic payment into that.

Watch the fees, though. If the non-KiwiSaver fund has higher fees, which would really eat into returns over long periods, you may decide to put up with the inaccessibility of KiwiSaver and contribute more there.

AOver the years probably every major political party has come in for praise and criticism in this column. The politicians never comment. Hopefully they’ve got more important things to do.

On your plans for your daughter, I think you’re over-rating the advantages of term deposits over KiwiSaver. Your daughter could similarly deposit her own money into a KiwiSaver account — on either a regular or occasional basis, and she could also watch it grow and learn about compounding. I think every provider would let her access her balance online.

And within KiwiSaver she — or you — has a wide range of types of investment to choose from.

But you’re right about access. The big negative about KiwiSaver is the lack of access to the money — perhaps to pay for university or setting up a business. But of course your daughter could use it to buy a first home.