NZ Herald 18 July 2009

AYour first three words say it all — or at least most of it. The company approached you, presumably by phone, email or mail. That’s not a good sign.

I would be interested to hear from any reader who has gone into an investment after a direct approach from a company they didn’t know, and has been happy with the outcome. Please write and tell me about it.

A further warning sign is, as you note, the company’s reluctance to put its guarantee in writing. Even if it were written, we couldn’t be certain they would honour their promise. It’s amazing how easily some companies wriggle out of such commitments — or simply don’t respond or disappear.

Nor does their spelling of the “racong” industry in the brief introduction on their website inspire confidence.

Finally, and perhaps most importantly, think about what they are apparently offering. If they really knew which horses were going to win, why wouldn’t they simply make their money on the gee-gees, rather than by selling their secrets to you?

In answer to your questions, no, I’ve never heard of the company. The Australian Securities & Investments Commission (ASIC) does confirm it’s registered with them, but that doesn’t amount to much.

“When a company is registered under the Corporations Act 2001 it is automatically registered as an Australian company. This means that it can conduct business throughout Australia without needing to register in individual State and Territory jurisdictions,” says an ASIC spokesperson. “There is further information on our website: www.asic.gov.au under the “For companies” tab.”

She adds, “We cannot provide any comments as to whether your reader should or should not do business” with Winston Pride.

That’s because ASIC doesn’t make any judgment about the quality of registered companies’ business. And when you stop to think about, it can’t, and nor can any New Zealand government agency.

It would take heaps of taxpayer-supported resources to look into every business in enough depth to pass judgment. Even then, where should an agency draw the line? A risky business is not necessarily a bad one, as long as everyone understands the risk.

In this case, though, something tells me you are probably not onto a winner. Give it a miss.

AI agree that KiwiSaver members won’t do themselves many favours by comparing the performance of their fund with similar funds offered by other providers. As I’ve said often before, last year’s best performer is — if anything — more likely to do badly this year than well.

But this is probably more true of the riskier funds, that invest in shares, property and so on. I haven’t seen research on different cash funds, but I suspect there isn’t quite so much unpredictability. So I sent your letter to BT Funds Management, which runs Westpac’s KiwiSaver scheme.

A spokesperson replied that because KiwiSaver is a long-term savings vehicle, the investment manager for the Westpac KiwiSaver Cash Fund “considered the appropriate investment timeframe of the fund to be three years — rather than simply looking at cash as a purely short-term investment (like deposits with banks).”

She goes on to say, “Investments in cash can cover a range of securities which include interest-bearing bank accounts and other cash-like investments. The recent turmoil in world financial markets has impacted on the short-term performance (compared to peers) of the fund as credit spreads widened over 2008 and early 2009.” The credit spread is the spread of returns between risk-free assets, such as government bonds, and any other investment.

In other words, Westpac is saying, “Be patient. Our day will come — hopefully.” Adds the spokesperson, “As with all of the KiwiSaver investment funds, we continue to actively monitor and review the performance, investment policy and management of the fund.”

It’s up to investors to decide whether they want to hang about or transfer to another similar fund.

On fees, BT Funds Management says, “The fees charged for the investment management of the Westpac KiwiSaver Cash Fund are competitive with the fees other KiwiSaver providers charge for cash funds.”

A check on the KiwiSaver fees calculator on the Retirement Commission’s www.sorted.org.nz shows the fund’s fees are dead average, with 12 providers charging more and 12 charging less.

By the way, the Sorted calculator is probably the best place to compare KiwiSaver fees — although the whole issue of managed funds fee disclosure is still murky, and even this calculator is probably not yet perfect.

If you are youngish, don’t be shocked when the calculator comes up with figures like $15,000 or $25,000 in fees, and percentages that might be above 10 per cent. That does not mean you are paying those sorts of numbers in a single year.

The dollar figure in the first column is the total fees you are expected to pay over the whole period from now until when you can get your money out in retirement. The percentage in the second column is the dollar figure as a percentage of your expected retirement total. Given that it incorporates payments over many years — for younger people several decades — it will be a much higher proportion of your retirement total than you would pay in a single year.

In and of themselves, the numbers don’t mean much. The point is to use them to compare different funds you are considering investing in. In the fourth column you can tick the funds that interest you, click ‘compare’ at the bottom, and then get a handy table that includes only those funds.

AWell put. There’s been a fair bit of complaining about KiwiSaver lately. That’s not to say people shouldn’t complain if their money isn’t going where it should be as fast as it should be. But the scheme remains highly attractive, and it’s a pity if everyone under 65 doesn’t take part.

Now that employees can put in only 2 per cent of their pay, the “I can’t afford it” excuse is a bit lame. Two per cent of $30,000 is less than $12 a week, and 2 per cent of $50,000 is less than $20 a week. And, as you say, contributions from employers and the government really boost savings.

On your comment about share prices, we don’t know that prices won’t go down further. But, as you say, when you are drip feeding into a fund there’s comfort in knowing that your new money is buying shares at cheaper prices. Over the long haul, of course, you want prices to rise. But we can be pretty confident that will happen.

Nor is there a big worry about companies going under. KiwiSaver funds hold a wide range of shares, and it’s pretty unlikely that more than a small proportion will become worthless.

Your last comment, about the state pension, concerns me a bit. It sounds as if you don’t expect to get any NZ Super. While nobody knows what a future government will do, I would be really surprised if that happens. Retired people are voters too.

It’s quite possible, though, that in future those with savings could receive less NZ Super than those without. You seem to accept that, but others might avoid KiwiSaver because of it. Should they? I have two responses:

• By staying out of KiwiSaver now, you are definitely missing out on money from the government. Does it make sense to miss out now, on the chance that you might get more government money later?
• I can’t imagine any government penalizing those in KiwiSaver — a government-supported scheme — more than people with other savings. Owners of rental properties, direct share holdings and so on would also be hit. Therefore — do you want to go into retirement with no savings of any kind, with your entire income dependent on what the government chooses to give you?