NZ Herald 7 November 2009

AIt’s free ad time for independent fee-charging investment advisers. Readers should be able to rely on these advisers to put clients’ needs first — as opposed to recommending investments that give the adviser the highest commissions or other rewards. As a wise man I know says of advisers, “If they don’t charge fees, the customer should be very afraid.”

If you are an independent adviser who charges fees, please email me your name and website by November 27 2009 and I will include you in a list in this column in December. To be on the list, you must:

• Guarantee that when you give a client investment advice, the only money or other consideration you receive is explicitly stated fees that you charge the client. Any commissions or other considerations you receive from financial firms or others are passed on in full to the client. (I would prefer that financial firms didn’t make such payments, but let’s be realistic.)
• State your fees and whether you charge an hourly rate, a fixed amount, a percentage of the amount invested or on another basis. For example, “$100 an hour”, or “x per cent of the amount invested up to $y, and thereafter z per cent”.
• State whether you charge an ongoing fee, and if so how it’s calculated.
• Promise to give any clients who request it — and all readers of this column should do so — a signed letter that says, “I truly believe I have given you the best advice I can, having considered a wide range of products, and that I have told you about all real or potential conflicts of interest.”

Put “adviser” as the email subject, say that you agree to be bound by the guarantee and promise, and give the information on fees.

I won’t be in a position to check what you say. But I’ll encourage readers to tell me if you don’t stick to what you’ve said — and I’ll report it in this column.

It’s important to note that being independent doesn’t mean being good. Competence, knowledge and integrity are perhaps more important. Readers should ask about an adviser’s qualifications and experience and go through the lists of suggested questions on www.sorted.org.nz (search for “Getting the right investment advice”) and www.sec-com.govt.nz (click “Financial advice”) before hiring an adviser. There is also advice on www.consumer.org.nz. I suggest you “interview” several advisers.

A good test of the quality of advice is to note whether the adviser asks, early on, if you have any debt including mortgages. If you have high-interest debt, they should always recommend repaying that before making investments. And if you have a mortgage they should discuss the merits of repaying that before investing.

One more point for readers: If you think you have a good independent adviser, suggest they take part in this. If their name doesn’t end up on the list, you might want to ask them why not.

AI was also taken aback when last week’s correspondent said he asked Inland Revenue how to treat the capital gain when some clients sold a rental property, “as I was not a fan of this couple.”

For answers to your questions, I went to the NZ Institute of Chartered Accountants, which pointed out that we don’t know whether the tax agent is a chartered accountant. “There are a significant number of IRD tax agents who are not chartered accountants, and who are not obliged to adopt the same ethical and professional standards as apply to members of the institute,” said Tom Davies, director, professional support.

He added that his comments apply mainly to members. You can check whether your accountant is a member by noting whether she or he uses the term “chartered accountant”.

There is no automatic obligation for an accountant to minimise tax, said Davies. It depends on the terms of engagement.

“Usually an accountant is engaged to prepare financial statements and related tax returns. If, in the course of this work, the accountant comes to the view that the client could benefit from some change in their tax position, then the accountant will generally bring this to the client’s attention and things can flow from there.”

However, he added, “How far does an accountant go? He could spend hours and hours of research and come up with not very much — probably the case for the great majority of taxpayers — or create complex structures that the client will not understand, and which might be challenged by the IRD and defended at considerable cost.” What’s more, Davies noted, if it’s “cutting edge” stuff, the defence might not be successful.

“All this research costs the client, and may not generate much in the way of net tax savings,” he said. So an accountant would probably first discuss the costs and possible outcomes with the client.

I then asked Davies whether there would be any legal grounds to sue an accountant if he or she was “attempting to persuade the IRD to charge a client more tax than it needed to pay?”

His reply: “For a starter, a client pays tax which is appropriate to the client’s tax position, and the tax payable depends on how the tax legislation applies to that tax position.” If there’s uncertainty, an accountant may discuss this with Inland Revenue — not necessarily revealing the client’s name. But “the accountant can’t ‘persuade’ the IRD to charge more tax than is legally due on that tax position.”

However, he added, “Perhaps the reader has in mind the possibility that the accountant might dob him in, so to speak, to the IRD for tax evasion or for taking doubtful tax positions.

“Members of our Institute, chartered accountants, have an ethical requirement to maintain the confidentiality of their clients’ affairs. This means they can’t disclose client transgressions, even those of an ex-client, to the IRD except in certain relatively rare situations where they may be legally required to do so.” He added that non-member tax agents can make their own decisions on this.

“As to whether a client could sue his accountant for dobbing him in to the IRD, I regard that as a somewhat bizarre question. It’s akin to suing a witness for reporting your criminal activities to the police, and thus causing a loss of earnings while a guest of Her Majesty.

“What is the client’s loss? The tax that he was legally required to pay? I’m not a lawyer, but I can’t see a claim for the loss of evaded tax getting much traction.”

Sounds reasonable to me.

AIf a marriage or similar relationship breaks up, the money in a KiwiSaver account is treated like other savings. It’s relationship property to the extent it was contributed during the relationship.

That means that a court may order some KiwiSaver money to be transferred to a former partner, or the partner may get more other assets to offset the KiwiSaver account.

That’s probably not what you want to hear. But think carefully before giving up on your assistance. Contributing to KiwiSaver is a great way to help your children. The government and employers also contribute, and your offspring may benefit from the KiwiSaver help for first home buyers.

Look at it this way: If one of your children’s KiwiSaver accounts did end up being split 50:50 in a marriage break-up, she or he would probably get at least your contributions while the ex-partner would get most of the government and perhaps employer contributions — money your child wouldn’t have had if not for KiwiSaver.