QRe your comment last week that the Aussie share market probably moves most closely to the New Zealand one, it may do from an index fund point of view, but the makeup of the markets is very different.

In Aussie you have over half the market in financials (28 per cent, think the big banks) and materials (25 per cent, mostly mining), according to Craigs Investment Partners.

In New Zealand we have healthcare (19 per cent, Fisher & Paykel Healthcare mainly), industrials (22 per cent, Fletcher Building etc), and utilities (22 per cent, power companies, Spark, Chorus etc). Not much in financials or materials.

So while you would get much more diversification from using a world fund, the Aussie market is not that similar to ours, and can provide a lot of variation from New Zealand, especially if people are investing directly.

I have to agree with your rooster who said dealing with Aussie shares is hard work in comparison with New Zealand. This is an area where New Zealand is way ahead in the tech stakes.

We have been investing in NZ/AU shares for 40 years, and even now that it is essentially free to call Australia it is still a pain for the admin. The Aussies have had a go at updating their registry software platform, but it was shelved with many millions down the drain.

It helps to have your Australian shares held on your broker’s account as opposed to in the antiquated Aussie CHESS system.

AYou’re quite right that the dominant Australian shares are in different industries from the dominant NZ shares. So they can give you industry diversification — although other industries are not represented well on either share market.

But there’s another important issue.

“The two economies have a lot in common — a similar policy landscape, China being the largest export market for both, and a high dependency on the housing market as a driver of activity,” says Mark Lister, investment director at Craigs Investment Partners. “So even though the share markets are quite different, the two economies are more intertwined and can move in tandem.

“I would not consider a portfolio of New Zealand and Australian shares to be a well-diversified one (regardless of whether it was made up of index funds or individual companies). The world is a big place, and investors need to think much more globally than this!”

What’s more, says Lister, “the NZ and Australian currencies also tend to be highly correlated, and often move in tandem.

“This is in contrast to the US dollar, which often moves in the opposite direction to the NZ dollar during periods of uncertainty or risk aversion, adding another layer of protection and diversification for local investors in international shares.”

On the industry figures you quote, Lister says, “they’re simply based on ETF (exchange traded fund) holdings for all of those markets. However, index weightings are regularly rebalanced over time as companies become bigger or smaller in value, so these will change rather than staying stagnant.

“It’s also important to note that there can be big difference between companies which are grouped into the same sector. In New Zealand, as an example, Fletcher Building and Auckland Airport are both classified as Industrials, even though one is a cyclical construction company, and the other is an infrastructure asset with large real estate holdings.”

P.S. I hope last week’s correspondent is happy to be called a rooster!

QI have enjoyed your weekly columns and usually very sound advice. However, your comment last week to sell Australian shares is a little off the mark, as it’s a very much larger market than ours. It has a wide range of businesses, especially mining, without the New Zealand tax issues that other markets face.

The main thrust of your correspondent’s advice was the apparent hassle when joint holdings need to go single upon death of one of the parties.

That would have been a future concern to us with our numerous joint shareholdings in Australia. I therefore consulted my broker, Jarden Direct Broking.

Their reply was: “As your Aussie shares are held in CHESS with us, they are not held in the SRN system as the article mentions. So if one of you passes away then the joint account would be changed to the name of the surviving person, and a new CHESS account would be opened up in their name, and the joint shares transferred to the CHESS account in their name.”

It is a simple and easy process to action. Trust this is helpful to those who were concerned by the earlier advice.

AThanks for passing that on. Even though our correspondent above is not impressed with Australia’s CHESS — which stands for Clearing House Electronic Subregister System — it seems it will cope with your concerns.

On your comment on tax, not every Australian share is taxed under the same rules as New Zealand shares, although most listed shares are. This tool on Inland Revenue website tells you which shares qualify.

Oh, and by the way, I didn’t quite say readers should sell Australian shares, just that’s it’s not a bad idea to swap them for an international share fund.

QIt’s a shame that your correspondent last week had problems with Australian shares and your subsequent advice to sell them.

Australia has some excellent companies in industries not listed on the NZ exchange and with strong international business e.g. BHP, Rio, CSL etc.

There is a simple solution to avoid the pitfalls encountered by your correspondent. You form a trustee company with, say, $100 capital, 50 per cent held by each spouse, and each spouse becomes a director of the company.

Then you transfer all the shares held by the family trust and all the shares held in joint names into the trustee company. Your sharebroker can assist with this. All dividends are paid, as previously, to either the family trust or to the joint bank accounts.

The trustee company does not have any income, so there are no accounting concerns. Any future buying or selling of shares is done in the name of the trustee company. The only ongoing obligation is to file the trustee company’s annual return with the Companies Office and pay their annual fee of $57.20. The Companies Office sends out a reminder each year and the return can be completed on line in a matter of minutes.

If one of the spouses passes away you simply appoint a new director to the trustee company to replace the deceased director. It’s only a matter of passing a resolution to this effect in the trustee company’s minute book. The above is not difficult and certainly means that you are prepared for the future.

AThanks for presenting another option for readers.

I sent your letter to the experts at law firm DLA Piper for comment. Managing partner Martin Wiseman says, “Essentially the reader’s letter may be a little simplistic, not the least because the shares held by existing trustees would have to be transferred to the nominee company. It might be a more effective strategy if the nominee company was formed at the same time as the trust was originally. But it wasn’t.

“There are also potential tax and compliance issues too many to elaborate on at length.”

Adds tax partner David Johnston, “From an administrative perspective, we would agree that nominee arrangements can work well. However, the tax treatment can be complicated.”

Okay, where are we on all this?

Adding Australian shares to a portfolio of local shares gives you considerably more diversification. It’s a good move. But you can easily broaden your range much further by investing in a global share fund. The more you diversify, the more you reduce volatility without lowering your average return over time. And if you use a global fund run by a New Zealand provider, the admin is simple.

QI thought I must write to you about an item in your February 18 column about a reader’s bank apparently not understanding laddering term deposits.

My background was in banking. Part of my role included term deposits and I definitely understood and offered laddering.

It is sad that the writer had such an experience. I only hope that some bank managers have read the article and raise the issue with their own staff.

AAgreed. Laddering — which is basically setting up longer-term deposits so you have one maturing each year — works well for many people. I reckon every bank teller should understand it.

QI used my credit card for overseas payments for decades with no problems. Recently, however, I have been trying to use my Westpac debit card and credit card to pay for a long post-retirement overseas trip.

Although I own a large mortgage-free home and have about $1 million in investments and a pension, as well as NZ Superannuation, my bank has, apparently randomly, declined some of my accommodation and travel payments, even a quite small one.

When I complain, I’m told I can only avoid this by ringing them in advance and getting permission to make a payment in a narrow timeframe. I’m meant to be grateful that they are “protecting me from fraud”. They refuse to divulge the criteria they are using.

Several times, because my accommodation bookings are often set up, under the booking.com system, to be paid automatically two or three days ahead of arrival, I need a credit card payment for the next country I’m staying in to go through while I’m still in another country. Therefore, even though I give Westpac a list of where I am going and when, they may do one of their random dishonours because the countries are different. That could lose me my carefully arranged bookings.

They will only stop their arbitrary process if I accept all the responsibility for any fraud, which I find unacceptable.

I’m now nervous about going overseas with their cards, which they may randomly dishonour, and when I won’t be able to ring for permission to use my own money at a time the New Zealand bank is open.

I find it odd that this has happened just after I turned 65 — I’m very curious to know if others in my age group have been treated similarly!

AThere seems to be a fine line between protecting you and hindering you.

“We apologise for any inconvenience caused by these declines, but they are in no way related to employment status or age,” says Mark Coxhead, Westpac NZ’s head of financial crime.

“We regularly recalibrate our fraud prevention processes to mitigate particular types of emerging fraud, and recently introduced a number of rules in relation to travel booking sites that were subject to heightened fraud — these rules have likely triggered the declines in question.”

While the declined transactions may seem random to you, “there are various algorithms working behind the scenes to identify transactions that may be higher risk than others,” says Coxhead.

Don’t worry about bank opening hours. “We have a team of specialists available 24 hours a day to help Westpac customers who are overseas. Customers can call us at anytime from anywhere in the world. Our phone numbers are on the back of their cards.”

He adds, “It remains important for our customers who are travelling overseas to notify us of their plans so that we can better protect them from fraud.”

Coxhead says Westpac’s fraud prevention team would be happy to look into your particular situation “so we can investigate and assess how to best prevent our customers from having a similar experience in the future, without increasing the risks of becoming a victim of fraud.” I suggest you contact them, perhaps with this Q&A.

Women and Money

On Wednesday, March 8, at noon, I’m taking part in a panel discussion to mark International Women’s Day, with Frances Cook, Te Kahukura Boynton and Sarah Kelsey. The FMA, which is running the event, says it is “designed to inspire women towards financial empowerment”. You can watch online live or afterwards. See here.

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Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.