ASSET 124 - 2013

ISSUE 124

CPD: HOW, WHAT AND WHY?

Why Sam What’s driving Knowles joined passive Partners Life activists?

KiwiSaver as a community service

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CONTENTS

LEAD STORY

UP FRONT 04 EDITORIAL RFA, AFA and now KFA?

07 PEOPLE New appointments.

10 NEWS FROM AUSTRALIA 11 NEWS FROM NEW ZEALAND

14 12 Search is on for CPD credits Does the requirement to complete hours of continuing professional

development each year result in better advisers? ASSET looks at what counts as a CPD hour, what changes are looming and who can offer structured training.

{SAM KNOWLES: TOO MUCH FOCUS ON COMPLIANCE }

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REGULARS

06

24

20 26

{OPEN TO QUESTION} { INVESTMENT }

{ INSURANCE }

{ ASSET ADVISER }

06 Do we need a KiwiSaver-only adviser?

20 The best practice doughnut 22 New insurance products

23 What is the FADC? 26 Risk tolerance isn’t one-size-fits-all

24 Passives can’t help getting active 26 The fight to be independent 30 Price versus value on ETFs

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UP FRONT

{ FROM THE EDITOR }

RFA, AFA and now KFA? SINCE REGULATION CAME IN, the number of Authorised Financial Advisers has hardly changed. It sits in the 1900s and has stubbornly failed to crack the 2000 mark.

Indeed it looks like it is falling ever so slowly with 1921 on the register earlier this month.

It’s hard to argue with the proposition that there are insufficient AFAs for a country with a population of 4 million people.

What is more interesting is to ask why has this number not budged?

One proposition is that the regime is too complex, costly and bureaucratic so it doesn’t make economic sense to become an AFA. Whether that is correct or not is something others are better placed to answer than myself.

Various higher beings such as the Financial Markets Authority and the Code Committee have acknowledged there is a lack of AFAs in New Zealand and changes need to be made. Especially important, in their view, is that there are two million KiwiSaver members who need advice.

This necessity is growing as balances start to get up to meaningful levels.

The solution being proposed is to make a new designation, we call it a KFA, who can give advice around KiwiSaver without having to jump through all the hoops and become a fully-fledged AFA. It’s pretty simple to understand the basic rationale for this move however when taken in a fuller context it appears to be an acknowledgement there is a problem and it is a solution which some feel demeans the work and effort advisers have committed to become fully authorised.

It is totally understandable that AFAs generally don’t support RFAs being given a leg up to help them start to compete in the investment space.

You can also see that RFAs selling KiwiSaver under class advice rules

04

Maybe this new designation of adviser is limited to how far they can go with giving advice based on balances. is problematic and so limited that it is arguable whether this is a sensible approach.

Having a system where advisers look at KiwiSaver in insolation - without reference to other insurance and investment - does not fit with the concept of financial planning.

It maybe okay for a “KFA” to help a client in the early stages of their KiwiSaver journey but as a member’s balance gets to be significant, as some are, then a full AFA service should be provided.

Maybe this new designation of adviser is limited to how far they can go with giving advice based on balances.

But the real problem with KiwiSaver is how banks are operating in this space and getting customers to transfer to a bank scheme with no advice. It is the real issue that needs to be addressed. If a new designation helps independent financial advisers win back some of these customers to better advice, then it is a good step.

HEAD OFFICE 1448A Hinemoa Street, Rotorua PO Box 2011, Rotorua P: 07 349 1920 F: 07 349 1926 E: editor @assetmagazine.co.nz PUBLISHER Philip Macalister EDITOR Susan Edmunds PRODUCTION ASSISTANT Alana Petersen CONTRIBUTORS Jenny Campbell, Amanda Morrall, Russell Hutchinson, Clayton Coplestone, Paul Resnik, Anthony Edmonds, Kelly Gregor DESIGN Jonathan Harding ADVERTISING SALES 07 349 1920 027 437 7527 SUBSCRIPTIONS Dianne Gordon P: 0800 345 675 E: subs@assetmagazine.co.nz ASSET is published by Tarawera Publishing Ltd (TPL). TPL also publishes online money management magazine Good Returns www.goodreturns.co.nz and The NZ Mortgage Mag All contents of ASSET magazine are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited.

ISSN 1175-9585

Philip Macalister Publisher

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OPINION

OPEN TO QUESTION CLAYTON COPLESTONE HEATHCOTE INVESTMENT PARTNERS

MIKE HAYES

HAYES INVESTMENT AND INSURANCE SOLUTIONS

JEFF GOLDSWORTHY GOLDSWORTHY FINANCIAL SOLUTIONS

DO YOU THINK A KIWISAVER-ONLY ADVISER IS A GOOD IDEA? WHY/WHY NOT? I don't think that a KiwiSaver-only adviser is a good idea as, for many consumers, retirement savings initiatives are going to be one of the most important financial decisions that will be made in a lifetime.

To have poor or substandard advice from the outset can magnify over time and lead to significant outcomes later in life. All financial matters should only be dealt with by those individuals who have taken the time to learn and demonstrate that they are equipped to provide robust and relevant financial advice. This will not only contribute towards better investment outcomes, but will go a long way towards developing consumer confidence in the industry.

It’s a bad idea. One reason is that there are already significant balances in KiwiSaver. I do have a reasonable KiwiSaver book, some people have $50,000 or more. RFAs are not allowed to advise on $50,000 at any time but somehow if it’s in KiwiSaver, it’s fine.

In a few years people will have $100,000.

AFAs went to the time and effort to get authorised, why should we have bothered if you can be an RFA and do it?

No. I know it’s all about getting people into KiwiSaver and I fully acknowledge that. But at what point do you go from the initial getting them in and move to managing money going forward. Balances now are getting sizeable coin in there. The whole process of securing qualifications was so that you could go out and give investment advice. If not enough people have opted in to be AFAs, that’s as much about the expectations of the powers that be than anything else. Watering down the requirements isn’t the answer. It belittles the credibility that you have by having investment qualifications. At 52, I’m doing my Massey papers. Why go to the expense and effort if they are going to water it down?

HOW CAN THE LEVEL OF ACCESS TO ADVICE ON KIWISAVER BE IMPROVED? Consumers are beginning to realise that their KiwiSaver nest-eggs are becoming meaningful. I'm not sure whether there is any "science" around this, but anecdotally I have heard that KiwiSaver balances become important to consumers when they could buy a second-hand car with them. So now seems to be about the right time for the financial services industry to promote themselves as worthy advisers for consumers’ KiwiSaver savings. I suspect as these balances continue to grow, that consumers’ interest and improved financial literacy will lead them towards non-aligned advisers who are able to provide bespoke advice.

06

I don’t actually think we need to improve access to advice. Many people are happy in default schemes and a lot of people get advice from their banks. All those bank schemes have advice already. People who want advice are finding it. It’s a mistake to say one million KiwiSaver members all need advice. More AFAs will get into it once balances grow. The answer isn’t to let RFAs do it but to make it easier for AFAs to do KiwiSaver advice. That way the integrity of AFAs is maintained. It’s easy to tell someone who’s starting out what to do with KiwiSaver, you could do that in ten minutes, but all the regulation means it takes half a day.

The ultimate issue is how do you get people to get advice, how is it fair and equitable to everyone? I don’t have an immediate answer for that. KiwiSaver to us is not an active area to target. We certainly do it in terms of our investment clients, we provide encompassing advice, which KiwiSaver fits into. But we don’t target it as a way of finding new clients. Commercially it’s not viable to be a KiwiSaver adviser.

That’s where the banks kick in.

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UP FRONT

a new appointment email details { PEOPLE } Ifandyoua have picture to editor@goodreturns.co.nz

distribution manager – inbound. He will be responsible for distribution of SCTI’s inbound products which cater for the international student market, those in New Zealand on a working or visiting visa, and the Recognised Seasonal Employee market.

With more than 30 years’ experience in the financial services sector, including previous roles with AMP, TOWER, Southern Cross Health Society and in the UK health Insurance market, Gregory is a specialist in third-party distribution. This breadth of experience will be utilised to develop existing SCTI distribution channels and open new ones.

NEW CHAIR FOR IFA

understand what MDRT membership is all about plus encourage attendance at the annual MDRT meeting. I share the MDRT passion and this is an experience that every adviser should aspire to as the annual meeting is like no other."

MDRT NZ has also appointed an area chairman to assist Stephens. That role has been filled by Cameron Bryant, who will help with the development of MDRT in the South Island.

NEW CHAIR FOR NEW ZEALAND’S MDRT Julie Berry

A former chairman of the Financial Planning Association of Australia in Australia has taken over at the top of the IFA board.

Julie Berry has been elected as chairman of the Institute of Financial Advisers. She has been a director since 2011 and was recently appointed for a second two-year term.

Berry is an experienced adviser, with CFP certification. She said the board was committed to insuring the IFA had the resources to support its members to access tools, network and knowledge to help their businesses and careers.

IFA president Nigel Tate said: “Julie brings a wealth of experience to IFA both as a financial adviser running her own business in Australia and from her involvement with the Australian association.”

Berry said being part of a professional body was critical in helping advisers become the best at what they did.

The Million-Dollar Round Table has a new chairman in New Zealand and has set new goals for its membership.

Warren Stephens is the new Million Dollar Roundtable chairman, taking over from Mark Solomon.

The role of the NZ chairman is to promote MDRT membership with the aim of increasing the organisation’s numbers and sharing the benefits.

Stephens said: “There are so many benefits that advisers are missing out on but eligible for and I intend to look to continue the great work my predecessors have done in recent years and help inspire more Kiwi advisers to

SOUTHERN CROSS TRAVEL APPOINTMENT Steve Gregory has joined Southern Cross Travel Insurance (SCTI) as

Steve Gregory

David Ireland

IRELAND REMAINS AS CODE COMMITTEE CHAIR Lawyer David Ireland has been reappointed as chairman of the Code Committee for Authorised Financial Advisers, which administers the Code of Professional Conduct.

Ireland was re-elected for another 12-month term.

He is a partner at Kensington Swan and has been a member of the committee since it was established in 2009.

Committee member Michael Staal was also recently reappointed to the Code Committee for a further one year.

The current members are: David Ireland, Ross Butler, Shane Edmond, David Russell, Professor Dimity Kingsford-Smith, Gary Young and Michael Staal.

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UP FRONT

LOAN MARKET BOSS RESIGNS David Hart, chief executive of the biggest mortgage broking group in the country, is leaving the role.

He is reportedly stepping down for personal reasons.

He has overseen the group during a period of change, including its merger with Allied Kiwi and the creation of NZ Financial Services Group, which is one of the biggest advisory groups in the country with more than 500 broker members.

Hart, who is a shareholder in Loan Market and NZFS Group, has been at the helm for almost four years.

An industry source said there was not believed to be any ill will behind the move. “He’ll be missed, he’s been huge for Loan Market.”

RESERVE BANK APPOINTMENTS

David Hart

Two new directors have been appointed to the Reserve Bank.

Jonathan Ross, a lawyer with experience in corporate, securities, capital markets and banking transactions, joined the board earlier in the month.

Bridget Liddell

He replaces Chris Eichbaum, whose fiveyear term expired on July 31.

Bridget Liddell, who has a background in investment, venture capital and international governance, will join the board on October 1.

She replaces Arthur Grimes, whose term expires on September 18.

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All advisers under the NZFS Group umbrella have exclusive access to MyCRM, our world-class sales and client management platform. It’s just one of the tools we offer that will make your business more efficient and give you the competitive advantage in the marketplace.

To find out more about a group that’s committed to making it easy for you to grow your business and to focus on your client’s needs contact us today.

To speak to one of the experienced NZFS Group team call 0508 87 87 88, email info@nzfsg.co.nz www.nzfsg.co.nz

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UP FRONT

{ NEWS FROM AUSTRALIA } Compliance struggles continue

Call for action on financial literacy Australia’s Financial Planning Association has called for a commitment from both major political parties to promoting financial advice, to develop “an informed nation of financially enabled Australians”.

Chief executive Mark Rantall said research showed people who had quality advice were better able to support themselves in retirement and contributed to a fiscally stronger nation.

He said financial planners would work with the next Government to remove unnecessary red tape and identify impediments to delivering advice to more people.

Advisers ‘not the only driver of churn’ Adviser remuneration is only part of the solution to problems of risk policy churn, says Australia’s chief executive of the Association of Financial Advisers.

Brad Fox said the complexities needed to be understood.

"Focusing solely on adviser remuneration may represent a quick fix, but it will not address the broader underlying problems," he said.

Fox said direct insurance had a 40% lapse rate and advisers could play a big role in addressing that.

Compliance requirements are making it hard for advisers to communicate with their clients, Australian industry players say.

Disclosure statement and statement of advice communication requirements have changed.

Managing director of The Fold, a legal firm that helps advisers get on top of their regulation requirements, Claire Wivell Plater told Australian media she was worried advisers were too accustomed to the language they used and did not realise where their communication was letting them down.

“They don’t realise sometimes that they use passive language, they use jargonistic terms or they don’t fully explain how the remuneration is collectively paid and what’s deducted…Because they’ve got a compliance person who’s really not a communicator, writing this stuff.”

She said advisers needed to have the courage to know what they could leave out, must be able to express themselves in direct language and must make sure they also had all the right disclaimers in place.

“A disclaimer belongs in a contract, it doesn’t belong in an advice document,” said Wivell Plater.

“Compliance departments – of the large organisations in particular – try to make these things bullet proof by having disclaimers of all sorts in everything and sent to every client, and it loses its effect.”

She says that if advisers were treated as professionals by their peer group and their stakeholders then they wouldn’t need all the disclaimers.

Claims regulation politically-driven

according to former Citibank chief economist Stephen Koukoulas,.

He advised former Australian Prime Minister Julia Gillard on economic policy from 2010 to 2011, and has told Australian media that the regulation of the advice sector had less to do with perceptions of the advice industry and more to do with safeguarding voters.

“From a politician’s perspective, they don’t want to see people losing money through poor investment advice, because even when it is not their fault, governments are often blamed when people lose any money,” he said.“So with the regulation of advice…it’s not about politicians being out to demonise the industry, it’s about a blanket policy that stops people getting hurt, that’s what they are thinking when it comes to regulation.”

But he said the Australian environment was a good one for financial advisers, as the population was ageing and people would need advice on retirement savings. He said the industry had recovered well from the global financial crisis and low interest rates would also encourage people to seek professional input on investments.

Risk adviser jailed A risk broker from Victoria has been sentenced to a year and a half in jail after stealing $662,000 from clients and sending it overseas to someone he met online.

ASIC said Bruce Lawrence Wickett, a former director of Wickett Investments and Wickett Insurance Broking, pleaded guilty to three charges of theft in February.

The regulator said that instead of passing clients’ premium payments on to insurers, he sent the money overseas to someone with whom he had developed an online relationship.

FOFA’s fee disclosure rules and other new requirements are driven by motives of political self-preservation,

Keeping New Zealand financial advisers strong 0800 88 22 88 010

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UP FRONT

{ NEWS FROM NEW ZEALAND }

Proposed changes released Soft commissions and RFAs advising on KiwiSaver are in the sights of the Code Committee for Financial Advisers as it begins consulting on proposed changes to the Code of Professional Conduct.

Chairman David Ireland said it was timely to review the code, which has been in place since 2010.

One of the key changes the committee is proposing is added emphasis on code standard one – the requirement to put a client’s interests first – as the overarching code standard.

“We have had feedback from some quarters suggesting that if they comply with what is set out in the other standards, that overrides standard one… We had always intended that code standard one should be seen as

paramount. But nothing other than its placement gave it that emphasis.”

He said if the committee was to move towards being less prescriptive with the other standards, the need to put clients’ interests first would become even more important.

The committee is also looking at issues around conflicts of interest and ways that non-AFA advisers can give advice on KiwiSaver.

Big planning firms may return: James Big financial planning organisations are likely to return as the investment advice market grows, says the chief executive of NZ Funds, Richard James.

“In the advisory industry generally, there are very few who have had the time or the space to work on their outward-facing proposition because they have been so preoccupied with looking after their existing clients and meeting all the regulatory requirements.”

But he said there were not enough advisers to cater for New Zealanders’ KiwiSaver needs.

Overseas experience showed that,

left to make their own decisions, most people would not make good ones.

James said investment advice would be a massive growth industry in New Zealand, as it had been in the US and Australia after the advent of Government superannuation schemes.

Regulation ‘not successful’ Financial sector reforms and regulation have not improved the public’s faith in advisers, one commentator says.

Claire Matthews, of Massey University, said the Financial Advisers Act and the introduction of the Financial Markets Authority had not been as successful as they could have been, in improving public faith in financial markets or increasing their stability.

“I’m not necessarily convinced it’s made the public more confident in using advisers but it has made it more difficult for them to find an adviser because they have disappeared from the market.”

She said it was a situation that would probably improve over time.

“I think to a certain extent the FMA has gone too far, which was a possible reaction to certain.

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PROFILE

{ PROFILE }

HELPING TO CHALLENGE THE STATUS QUO Partners Life director Sam Knowles says too much focus on box-ticking compliance may be holding the financial advice sector back. By: Susan Edmunds

T

here are three things that Sam Knowles looks for when he is approached about joining a board as a director: A market big enough to provide ample opportunities, an organisation that has differentiation in terms of its growth model and the right kind of people on board to drive that strategy successfully.

The former Kiwibank chief executive is on the board of Trustpower, Synlait, SLI Systems, Xero, ON-Brand Partners, Unlimited Realities and Rangatira, among others. When he was asked to join the Partners Life board last year, all the required boxes were ticked.

“I know the area well, having been in financial services for more than 20 years.

I had previously run the BNZ life and managed fund areas. I saw an opportunity, not dissimilar from Kiwibank. There were large incumbents who’ve been doing the same thing for years with little innovation.”

Partners Life, by contrast, was coming through and doing things differently.

Challenging the status quo.

But one of the biggest surprises Knowles has encountered in his first 18 months on the Partners board is the change that regulation has wrought on the industry.

“We’re still in an enormously uncertain environment in terms of regulation. I’ve been a little surprised that the Reserve Bank has not been as on to it as it

should be.”

Partners Life made the news recently in relation to concerns that Reserve Bank moves to tighten the requirements on reinsurance funding could spell trouble for the new entrant to the industry.

When a policy is sold, the re-insurer pays a proportion of the associated sales and issue costs. In return, they receive that same proportion of the premiums, less an expense allowance, and pay the same proportion of claims. But the Reserve Bank has asked for submissions on whether there is a real risk transfer involved, or whether the deal is a loan and should be reflected in insurance companies’ accounts as such.

Knowles said the Reserve Bank was weighing the stability of the industry against the cost of capital but it needed to realise that there were very limited risks. “(The industry is) tried and trusted, locally and globally. It should adopt structures that allow the capital to flow. We don’t want the same thing as other parts of the insurance market (such as general), where limited access to capital has driven up the cost of insurance.”

Partners Life has talked to the Reserve Bank and is optimistic that whatever happens, it will be able to find a way to access capital at a reasonable price. That’s in the country’s best interests, too, says Knowles. “That means spreading the risk

globally rather than locally.”

But it’s not just insurers who are finding processes and rules changed when they don’t need to be, he says. Advisers are still rethinking how they could manage their businesses without having a lot of process controls imposed on them. “I’m not a strong supporter of process legislation.

AML is just creating new compliance processes without addressing the underlying issues.”

Knowles thinks there needs to be a better balance between compliance and investigation.

“It’s always been the weakness of our regulatory structures that they say if you follow these processes, we won’t have bad things happen, rather than saying these things always happen, we should sniff around and find them. There’s more focus on compliance than getting people out to see what’s happening in South Auckland, or with elderly investors in Wellington.

They’re not that confident about getting their hands dirty out there, asking people what’s going on.”

Advisers will continue to be a key part of Partners’ distribution model. And although the firm has been criticised for high upfront commissions, Knowles says the insurer’s board is unconcerned about churn.

No structure to pay for advice is perfect…

Commission is the outcome of competitive forces and regulation in the industry.

– SAM KNOWLES

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PROFILE

“No structure to pay for advice is perfect…

Commission is the outcome of competitive forces and regulation in the industry. That won’t change unless there is a change to the structures in the industry.”

There is no evidence that Partners advisers are moving policies around unnecessarily, he says. “I meet advisers from time to time and they are all very positive about their relationship with the organisation. There will always be a few who are very opportunistic but they don’t usually last in the business that long.

There will always be a few vulnerable people who will be hurt by that activity and

we keep a close eye on it. [Churn] is not something we’ve seen.”

People who have more complex needs will always require some form of one-onone, specialised advice, Knowles says. “I don’t see that changing but it doesn’t mean that we won’t look at other opportunities as they come out.”

There is still room in the market for direct products that are sold online to people who need very little advice or have very straightforward requirements. “There is scope for people not providing advice to offer good value, plain products.”

Banks have not been as strong in the

insurance space as they could be, Knowles says. At the moment, they are still focussed almost entirely on lending products and only look at other offerings to support that. “It’s an add-on, they don’t take it as seriously as they could. Despite what they say, they don’t think at the customer level, or about maximising the benefit to the customer of that relationship.”

New Zealanders hear a lot about how underinsured they are as a country but Knowles says some of the standards by which we are being judged are not quite fair. “This is not a rich country. Often we’re comparing New Zealand to countries that have significantly larger upper-middle classes than we do. As a country we would be better off if we were a bit more insured, and less reliant on the government as a safety net. But you have to balance that against saving for the future. It would require a change in attitudes to looking after yourself versus the government looking after you.”

He said KiwiSaver might change people’s perceptions and encourage more interest in financial protection.

Partners Life is always thinking about new products, but there are none that are due to come into the market in the short term. He says: “At the moment we’re focussing on our core product and extending that.”

The organisation will move more into group insurance. Beyond that, it has considered home loans but the market is not attractive enough to justify a foray into it at the moment. “We’d be working with another provider but there’s nothing under way at the moment.”

Knowles says all Western economies are worried about their house prices and something needs to be done to protect people from high-risk lending. “A lot of money goes into the housing market that would be better going into things that produce jobs for people. If banks have more and more high-risk lending and then there’s a correction the system is less stable.”

Knowles says he left his post at Kiwibank hoping to build a portfolio of directorships of companies that had significant growth potential, because that is where his skills lie. As companies grow, they need more strategies and processes. “That’s what I’m good at… Life insurance is a very sound industry. Partners is focusing on being innovative and successful and delivering what customers want.”

Work is continuing to get the company ready for its public listing in a few years.

Knowles says the Partners board is a strong one, and has the talent to push the company to quickly become a major player in the market. “Partners Life is the challenger in the market. That’s what I enjoy. Most of the companies I work with are challenging the status quo.”

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COVER STORY

{ COVER STORY }

SEARCH IS ON for CPD credits

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COVER STORY

Authorised financial advisers must complete hours of continuing professional development each year. But does it make advisers better at their jobs? ASSET asked experts what CPD meant to them, what advisers should focus on and which areas could be improved.

C

ontinuing professional development has been on authorised financial advisers’ “to-do” lists since regulation kicked in. But queries over the effectiveness of some of the training that is happening and how it is structured have prompted the Code Committee for Financial Advisers to reassess the rules as part of its review of the Code of Professional Conduct.

It says advisers need to ensure their development plans are designed so that competence, knowledge and skill are maintained at a level that is at least equal to the new, higher minimum requirements.

The committee says some of the existing rules around CPD are too prescriptive and the way they are being applied is undermining the principles.

At the moment, an AFA must complete a minimum of 20 hours of professional development relevant to their services in each CPD period. That professional development must comprise at least 10 hours of structured training.

To be structured training, the training must form part of the requirements for a qualification on either the National Qualifications Framework or the national register of quality assured qualifications, or be part of a structured continuing professional development programme managed by a DAO, QFE or professional body.

The committee is proposing to change

that to no less than 30 hours of structured professional development across every two CPD periods. As well, the AFA will be required to undertake additional training to maintain the AFA’s competence at the appropriate level required by this Code Standard or to satisfy the AFA’s professional development plan for that CPD period.

Some advisers have welcomed this, saying that it was unfair that as the rules stood, those who took two papers, for instance, would excess structured credits that became worthless when they could not be carried over.

But Strategi managing director David Greenslade (said the mandated) number of structured and unstructured hours should be seen as a minimum standard, not a target. “It’s not a case of clocking up 20 hours and then you’re done. Those hours need to be concentrated towards an adviser’s plan and target their area of expertise,” he said.

“I think a lot of advisers think ‘I can go to two conferences a year that cover the same area and that will meet the requirements’. But that’s too narrow.

They need to think about what relates to their business and clients, and to their compliance requirements and the ethics that go with that.”

He said CPD should not just be about learning the technicalities of the industry.

Advisers needed to consider how their clients thought and behaved.

Clients themselves could sometimes help to hone a CPD plan, he said. “[Advisers] should be looking for feedback from clients through customer satisfaction surveys on what they can improve on. They should be asking their clients if they’re not meeting their expectations and concentrate on areas they can improve on through their CPD plan.”

Greenslade said the FMA expected AFAs to know and to meet the requirements that applied to them. Regulation is a principlebased regime, and advisers are not required to send in their CPD logs. But they are mandated to meet the standards imposed and there are heavy penalties applied to those who breach them. CPD hours can be used to ensure that advisers are fully up-to-date with all applicable standards and are sure that their businesses are completely compliant.

“Advisers need to closely monitor what complaints they get from their clients and analyse and assess them, and look for ways to use those complaints to learn, and ways in which they can upskill and train. They need to build this into their CPD plans.

As the code stands at the moment, the Delegated Assessment Organisation (DAO model allows other organisations to assess workplace evidence required for standard set c.

This may change under the proposed revisions to the code but at present, it is designed for companies, associations or NZQA training providers It is designed for companies, associations or NZQA training providers. Each DAO nominates assessors who are trained and registered by the Skills Organisation. DAOS include: • AMP/AXA • Camelot NZ • Fidelity Life • Forsyth Barr • Ginger Group • IBANZ • SIT • Strategi Institute

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COVER STORY

{ COVER STORY } Most people realise the importance of being current with your knowledge.

You can't pass an exam 20 years ago and not do anything else. It's ensuring they get the right knowledge [at the right time].

– GARY YOUNG “The challenge is to have a complaints mindset and really use complaints as an opportunity to learn and to demonstrate to the regulator that they have learnt from the complaint and have actively used it in the CPD plans to improve.”

Advisers needed to ensure they constantly re-evaluate their plan so that it remained relevant and wasn’t static.

They needed to modify their programme so it remained relevant throughout the year, he said. “This isn’t an annual plan but a continuing development plan, it needs to evolve and it needs to remain relevant.”

IBANZ CEO Gary Young agreed.

"It shouldn’t be training to get points instead of knowledge. Advisers should be enacting their plans through their training.

CPD should not be seen as an annual points system but something that is relevant to their business and their clients.”

He said the industry had struggled to define what was useful CPD. “Most people realise the importance of being current with your knowledge. You can't pass an exam 20 years ago and not do anything else. It's ensuring they get the right knowledge [at the right time].”

It was unclear under the current code what Registered Financial Advisers (RFAs) needed to do to remain registered,

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Professional Advisers Association (PAA) general manager Jenny Campbell said. “The number one question I get asked is what CPD requirements RFAs need to complete.”

Although CPD is mandatory for AFAs, CPD is also important for RFAs because all advisers need to adhere to the Financial Advisers Act (2008) that states that all advisers need to show care, diligence and skill. Campbell said engaging in some quality CPD was a very effective way to do that.

RFAs often wondered how to prove they were compliant with the law and understood what was required of them. A good CPD programme would offer the FMA something tangible if it checked up on their businesses, she said.

“We do believe that RFAs will need to be able to demonstrate the steps they have taken to exercise ‘due care, skill and diligence’ in their advice. The easiest way to do this is to have a professional development plan in place, and to be an active participant in a CPD programme, with an up-to-date CPD register, showing what training and up skilling they have completed.

PAA strongly suggests that all advisers embrace the principles of the code.

Campbell said following the guidelines would help them run a compliant, and upto-date advisory business.

“For them, doing a Level 5 Certificate in Financial Services is an excellent way to implement a CPD programme. One module counts for half the annual CPD credits for AFA. So, if a RFA did two modules a year they would more than meet their obligations under the Act. “I think the FMA and the Code Committee have been kind to advisers over the past two years in allowing them to set up their own programmes and not mandating a curriculum that is not relevant to all advisers and their businesses. For example, the real estate industry is mandated by government.

So, all real estate agents complete the same training whether they are in the residential or commercial market.

“That would be a disaster for the adviser industry for everyone to do the same training. Advisers have the freedom to pick and choose their CPD, pick areas that they are interested in, and areas that are relevant to their businesses.”

She said the PAA did not want to use CPD as a stick to beat advisers with. “We want to offer advisers the opportunity to upskill, to enjoy the training and learn something they can take away with them. It would be a disaster if all advisers had the same training,” she said.

“QFEs are a different kettle of fish altogether. They need to apply to the FMA and then demonstrate to the FMA that they are keeping their advisers trained.

They need to put a training programme in

As the rules stand, authorised financial advisers are required to complete a minimum of 20 hours’ professional development in each CPD period – which usually starts on January 1 the year after they are authorised.

Advisers are encouraged to work out for themselves what sort of training is appropriate. The FMA says they should identify areas where they need to improve their competence, and look for training that keeps them up-to-date with developments relevant to their practice.

Ten of each 20 hours of CPD must be structured but a variety of subjects qualify.

To count as structured hours, the training must be part of the requirements for a qualification on the National Qualifications Framework, on the national register of quality-assured qualifications, or be part of a structured CPD programme managed by a DAO, QFE or professional body. Usually there is some sort of test to prove that the adviser attended.

Unstructured training can be claimed when it is at a level appropriate for the services being provided by the AFA. The degree of difficulty that is acceptable can vary, provided an adviser is completing training that is relevant to their needs.

Financial product training may qualify as either structured or unstructured training.

RFAs are also required to exercise diligence, care and skill and the PAA says participating in CPD training is a good way to do that, even though the requirements on them are less explicit. place and demonstrate that they do it.”

The past two years has seen positive change in the industry, Campbell said.

Really good advisers were doing the training anyway because the markets they operated in were always changing, she said.

But it can be challenging for RFAs and AFAs to manage their workloads while meeting their CPD requirements.

The chief executive of the Institute of Financial Advisers, Penny Mudford, said webinars were becoming more popular.

Online training meant advisers in rural areas did not need to travel to meet their CPD requirements, and it meant they had instant access to experts in the industry.

“We are focused on practical skills and ways in which advisers can gain knowledge.

We want to provide a pathway for advisers, to show them what to do when. We are trying to lift the professional knowledge and standards of advisers.”

Mudford said a lot of advisers had moved on from the notion that CPD was something they just needed to comply with, to understanding that it was something that could help them enhance their business and target their learning.

“Some advisers might get together, put

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COVER STORY

the jug on and have a coffee and watch a webinar and then have a conversation about it afterwards. It’s immediate training that is very accessible and very cost-effective for them.”

The IFA’s webinars cover a range of subjects and topics and get experts from the industry such as the FMA in front of advisers. The IFA also hosts annual conferences, workshops and master classes for advisers which all count towards CPD credits.

AFA Peter Coltman from Milestone Financial Services said the majority of advisers were engaged in continuing education before the FMA mandated it, but many didn’t record the hours they completed.

Another difference he said was that all training programmes now had to be approved by a Delegated Authorised Organisation (DAO) such as the IFA before they could conduct the training.

“There is heaps of training out there. If you land up going to all the roadshows, it becomes too much. There are conferences where you can gain your 20 structured hours. I wouldn’t imagine a lot of advisers struggle to meet the requirements.”

A lot of advisers have always belonged to industry bodies such as the IFA who demand more training hours from their

members than the FMA does. Coltman said that extra training beyond the minimum requirements indicated a commitment to professionalism.

“It’s very easy to get the credits, you might just have to pay for the training where that wasn’t the case in the past. But there is enough free stuff to get you through.

Advisers need to look at their priorities and then hit them. I probably spend too much in certain areas but I enjoy it. I’ve just taken on a staff member, so I need to take on some supervisory training soon,” Coltman added.

The Skills Organisation is the training organisation for the industry, and works with experts to develop qualifications that grow the skills and knowledge of advisers.

Financial Services Sector Lead Colin James said the organisation provided assessment options for Level 4 and 5 Financial Services National Certificates. “We have seen a number of individuals complete these certificates, even though they are not required by regulation to do so. I have no doubt that some of those have done so, as part of their professional development rather than specifically for the purpose of authorisation.”

Insurer Sovereign uses a range of multimedia and web-based training tools to meet its obligations as a Qualifying Financial Entity (QFE).

Sovereign’s chief distribution officer David Haak said the company took its compliance obligations as a QFE very seriously. The insurer has a three-line defence model that ensures advisers have the right skills and experience to provide professional advice to customers, and that the advice and recommendations meet their needs.

“We have a product accreditation programme to ensure that our advisers are properly trained in the products they sell and that they seek feedback from customers as appropriate to ensure that customers are satisfied with the advice and product recommendations they receive from our advisers,” Haak said.

He said the new regulations were a great start and that Sovereign had seen an improvement in supervision across the industry.

“The FMA have demonstrated that they will work with us and give guidance to QFEs and AFAs, and take action were required.

We would like to see more focus on RFAs, so that there is a level playing field across the industry and customers can feel more assured about the general capability of their adviser.”

Haak said maintaining robust training and compliance programmes and ensuring a “continued improvement approach” was taken would be a challenge going forward.

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PAA NEWS

Time to think of the rest of the country LVR restrictions could create more problems than they solve

A By: Jenny Campbell

According to the Real Estate Institutes stratified median house price index, house prices have risen nationally by 8.7%

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fter clearly signalling concerns about the activity in the residential property markets, the Reserve Bank called for a series of submissions on a range of macroprudential tools, or “levers” it was considering implementing.

It was reasonably obvious that LVR restrictions were the preferred tool, but there is real concern that this will be a futile and ineffective policy.

The Governor may be keen to flex his monetary muscles, but he is only too aware of the consequences to the wider economy if he uses the usual method, of hiking interest rates, to cool markets. That is why the Bank is looking at the range of alternative methods released for consultation.

The PAA has been highly critical of the Reserve Bank’s proposal to limit high LVR loans, and has taken a strong and vocal approach in nationwide media, and in direct submissions to the Reserve Bank.

We were concerned about the ramifications of using such a severe tool to try to cool a small segment of the New Zealand property market, as this policy will have a wide-ranging impact on a number of New Zealanders.

It must be frustrating for the rest of the country to constantly be bombarded with news about how hard it is to buy a house in Auckland.

Media commentators and journalists seem to forget that there are first-home buyers all over country, and these borrowers will also be

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PAA NEWS

affected by any new measures brought in by the Reserve Bank.

And if the underlying purpose of the LVR speed limits is to dampen Auckland’s heated property market, then this policy will arguably not achieve that goal.

Most stakeholders will agree that the activity in Auckland is more to do with a lack of supply of homes, than a true property price bubble.

Auckland is several years behind in the creation of new home stock. Construction and land supply simply have not kept up with population growth and movements.

This issue of undersupply is being addressed, but it will take more time for these new homes to be built, and meanwhile a LVR restriction will only make it harder for first-home buyers to even get on the property ladder. First-home buyers will be forced to remain tenants for much longer periods, while they try to save a larger deposit.

By increasing the pool of long-term tenants, this policy could in fact drive house prices even higher. Property investors and speculators (who often do not necessarily need high LVR lending), will be left to purchase housing stock to accommodate a greater supply of tenants who will have limited capacity to become homeowners.

And what about the rest of New Zealand?

According to the Real Estate Institutes stratified median house price index, house prices have risen nationally by 8.7% in the last year. However, if you take out the two hot markets, Auckland (a growing city with a legacy of undersupply of homes), and Christchurch (undergoing redevelopment following the earthquakes), then you are left with a much more modest national price growth of about 5%. It would be difficult to argue that this represents a nationwide property price bubble.

Instituting LVR restrictions will have a negative effect on home buyers outside Auckland and Christchurch. It is already difficult to find lenders willing to make high LVR loans in smaller regions, and it would seem patently unfair to those New Zealanders to make them shoulder the burden of more restrictive credit, when their own communities have not created or added to this perceived issue.

After the GFC, and the resulting spate of mortgagee sales, all lenders moved quickly to institute their own LVR restrictions.

Many mortgage advisers had the unenviable task of trying to help homeowners who got caught out by almost overnight blanket changes to LVR requirements.

These changes resulted in unfortunate scenarios, where people were stuck with

their existing loan (and lender), as being a high LVR customer, they would have lost their loan if they had moved house, or moved lender.

Property investors who were keen to sell down their portfolios were caught out by having entire proceeds of house sales being arbitrarily used to force down their overall LVR position with a lender – leaving the owner with little or no say on where the net proceeds of sale went – irrespective of their plans (purchasing a business or making another investment, for example).

Remember, high LVR lending is not “easy credit”.

Again, following the GFC, lenders did re-evaluate the quality of their loan books, and instituted more rigorous loan approval qualification.

Even after the record number of mortgagee sales following the financial crisis, there was no evidence that these loan defaulters were high LVR borrowers – they were far more likely to be over-extended property investors, or self-employed business owners.

Ironically, these defaulting borrowers often had plenty of equity, but equity becomes illiquid in a stagnant market, and the ability to service a loan becomes more important.

It is simply not possible to get a high-LVR loan currently unless you have proved to the lender’s satisfaction that you are capable of servicing that loan, and that your credit history and employment/income status is secure enough to warrant the “risk” of a high-LVR loan.

While we might be experiencing a period of “cheap” credit, it is not ‘easy credit’.

There is simply no evidence to suggest that the current lending patterns are in anyway irresponsible or inappropriate.

There is also a real concern that new home buyers in particular will find alternative ways to fund a larger deposit, should this become a necessity.

This will inevitably bring New Zealanders back to the days of the expensive second mortgage, and arguably expose these same somewhat vulnerable home buyers to highinterest, and high-fee lending.

But there is an up-side for advisers.

Although these new measures will make it harder for borrowers to obtain finance, it will also increase their need for good quality advice on how to navigate their way through these types of restrictions. It is a great opportunity for mortgage advisers in particular and adviser groups, to promote their services, and to demonstrate the value of good advice!

your business, your future, your choice

Independent thinking for advisers by advisers

• Advocacy at the highest level (Government) • New CPD portal, with structured learning capacity • Business training for advisers • PAA Friendly Guides for Advisers • ASSET magazine and Mortgage Mag (monthly) • Monthly newsletters, and industry updates • Industry conference in Auckland – May 16-17 2013 • Regional meeting programme • National Roadshows • Professional Indemnity Programme and Group Life Cover • Seven holiday homes And a dedicated team to assist you Website: www.paa.co.nz

Professsional Advisers Association Inc, PO Box 911 335, Victoria Street West, Auckland 1142 Phone: 0800 275 722, Fax: 0800 275 712 Email: admin@paa.co.nz

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INSURANCE

{ RUSSELL HUTCHINSON }

A risk-based approach to the sales process.

W

e ask clients to take a risk-based approach to their lives. We should apply similar principles to the sales process.

That means placing a far greater emphasis on getting clients to buy broader cover, than on calculating the precise amount of cover they require.

It means avoiding filling in lengthy

020

The Best practice doughnut personal details that languish unused while narrow insurance recommendations are made. We can also reduce the risk of complaints if we take a more risk-based approach.

Originally, before the six-step sales process and Authorised Financial Adviser Code were seen, the focus of “best practice” was on collecting data from the client, working out how much cover was required, and then preparing a nice report to show why.

The analysis sections are geared up to point towards areas of risk easily covered by insurance. They were silent on the areas that are more difficult. They rarely used questions to help collect data that would help them choose between insurers

or products. Name an insurance risk management form that asks “What’s your tolerance to insurer risk?” Or a process that does a decent job of reconciling the ideal amount of cover with the amount the client will actually buy.

So this focus on the amount of cover is a bit like the hole in the doughnut. It’s vital, and gives the whole process its shape, but it actually doesn’t have a lot of content.

The complexity of cover calculations now seems laughable. Why? Because even those that go through a great advice process almost never buy the recommended amounts of cover. Which kind of makes spending a huge amount of time establishing the number with a great deal of precision seem a bit wasted.

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INSURANCE

What’s the point worrying about whether the ideal cover is $982,000 or $1,143,000 when the cover bought will be $500,000?

That decision was limited at the client’s insistence because of their budget.

The lengthy fact-finds themselves created another compliance problem even while they sought to address one. They don’t help define the limits of your service clearly. Poorly defined service boundaries contribute to complaints from clients that begin “I thought I was covered for…” or “I thought I told my adviser about that…” In fact a good number of processes positively give rise to confusion. Ask about wills, sure, but do you do anything about them?

Asking lots of numbers doesn’t engage clients much. I always struggled with this myself – hide behind a form, a process, and follow the bouncing ball – but people who have become really good advisers tend to talk more about what you should cover and why first of all.

Also processes based on “how much” don’t help clients figure out how to manage different risks. This is proven in the recent research on underinsurance.

Most people have life insurance, and very few have income protection. Yet in terms of probability, and with varying impact, disability has a greater potential to wreck a family’s financial situation.

Take the following scenario, from the FSC’s paper on underinsurance.

A pre-school family, with two earners, and two children under five. The primary income earner is 36 and earns $47,000 per annum, the secondary is 33 and earns $30,000. They have a net worth of $210,000 and will have some debt.

Although two-thirds of these people will have life insurance, they will typically have $250,000 less than they should.

That’s a big gap – but nothing like the income protection problem, where 60% will have no cover whatsoever. Arguably, if you fix the second problem you have done a much better job than if you drag the level of life cover up to the ideal.

That’s why the process needs to change the emphasis to a schedule of risks considered on the basis of probability and impact. Ideally it will bring the most attention to those events which would have the greatest impact, and only then worry about how much cover to buy. Cover amounts come much more easily from a good discussion of the risks first.

How many so-called compliance systems provide decent tools to describe the probability of an event, and then model its actual impact. Impact should not just be described in financial terms but in emotive language: “My partner would have to go to work full-time” “We wouldn’t be able to go on holidays” “I don’t know how we’d put the children through university.”

These statements have more pull than

the calculation of how much replacement income is required.

Everyone knows that probability varies with age, yet insurance companies dedicate pages to working out how much cover is required, while tossing out only tired – and often very tired – statistics for only one age, the risk for a 40-year old being the most common.

So the risk-based prescription for the sales process works like this. Spend time carefully limiting the scope of your service to minimise misunderstanding and mission creep. When you have a solid list of contingencies you are going to suggest managing with insurance you need to consider the relative likelihood of each.

The simple fact is that virtually all clients will suffer an event that could trigger a health insurance claim, a big minority will suffer one that could spark a disability or trauma claim, and a very few will suffer a death prior to age 65. Each claim event will expose the effectiveness of your proposed insurance plan – providing an opportunity for your work to shine. Alternatively you may be in for a worrying few weeks after that telephone call where you reminded the client that they did not choose to take out income protection, for example.

Once a client is committed to covering a risk, a briefer, readier amount of cover calculation will be needed to run up against the proposed budget. Product and insurer selection can occur after that.

Considering your future?

For background details on our services go to www.mikemoore.co.nz or give me a call on

021 974 231 PO Box 47222 ponsonby, Auckland 1144 P: 09 520 5131 F: 09 520 5141 www.mikemoore.co.nz

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INSURANCE PRODUCTS

New income protection products

This month we look at new products and other changes from Sovereign and Asteron Life NEW: LOSS OF EARNINGS

E

arly this year, the Financial Services Council reported that “while more than 95% of homes and cars are insured, barely 20% of New Zealanders have income protection insurance”. The same report characterised 60% of New Zealanders as finding personal insurance “all too hard”.

This presents a massive opportunity for you to help demystify personal insurance and create a strong connection with clients and prospects in the process. To help, we introduced two new disability income protection products in March 2013. These additions strengthen our range of 10 cover options and are made to connect you with the full spectrum of New Zealanders’ income protection needs, from core to specialist.

Made to connect people on fluctuating incomes – contractors, those expecting large bonuses.

KEY BENEFITS:

• The flexibility to choose the most favourable benefit calculation at claim time – indemnity or agreed sum assured.

Your clients don't have to gamble on which option at application time.

• In many situations, loss of earnings will pay more at claim time than other types of disability income protection cover.

• Optional redundancy cover.

In conjunction with the new benefits, we further improved our income protection range with redundancy cover now available as an optional benefit under the majority of income protection policies.

For more information, visit: www.sovereign.co.nz/productchanges.

NEW: MORTGAGE AND INCOME PROTECTION

Made to connect with people who want straightforward income protection calculated on what’s likely to be the biggest component of living costs – their rent or mortgage payments.

KEY BENEFITS:

• Certainty from an agreed value contract with cover to a maximum of $6000 per month.

• No ACC offsets.

• Clients can choose to insure up to: - 110% of their mortgage repayments* or - 40% of their gross income* – a great option for those renting.

• Bed confinement benefit.

• Optional inflation protection benefit.

• Optional redundancy cover. * calculated at application time

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Asteron Life announced a number of product changes at its national roadshowin July.

Executive manager of intermediated sales Mark Frecklington said Asteron Life’s focus is on simplifying products and making them sustainable.

MORE LEVEL PREMIUM OPTIONS Level premiums are now available on Asteron Life’s income protection covers: Loss of Earnings and Loss of Earnings Plus.

These now include a level to 70 option to better reflect the real age of retirement.

Level to 70 is also now available for life, total and permanent disablement (TPD) and trauma recovery covers, and level

to 80 is available for life and accelerated TPD covers.

Frecklington said there had been adviser demand for more level premium options.

“Advisers have been asking for this for a long time. It’s about improving long-term affordability for clients.” Asteron Life’s statistics show clients tend to cancel their income protection policy at 46, just before they are statistically most likely to claim on it at age 47.

SIMPLER PRODUCT OPTIONS

All cover types have been repackaged simply into Asteron Life Personal Insurance and Asteron Life Business Insurance. Discounts have also been simplified.

Customers who buy lump sum cover and monthly income cover within the same policy will receive a 5% discount on the lump sum premiums.

CLEAR AND EASY-TOUNDERSTAND DOCUMENTATION Asteron Life’s policy documents have been rewritten in plain English and the Personal Insurance Policy Document has achieved the WriteMark Plain English Standard. Frecklington says this was developed to help customers more clearly understand the value of the product that advisers recommended. The Asteron Life application form has also been simplified and Frecklington says it is now much easier to use. It has been reduced in size by 33%.

NEW TECHNOLOGY

Asteron Life announced new technology that will speed up and streamline the application process. It has worked with advisers and Konnect to launch SureApp, a new quote and application system for advisers. It also announced the pilot of a real-time underwriting service, Asteron Life Express. More information on Asteron Life Express will be released in the next few months.

To find out more about Asteron Life’s product changes call 0800 808 106

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SPECIAL REPORT

Committee gets under way After three years in existence, the FADC has held its first hearings.

How does the process work?

I

t has already held its first hearings, but still relatively little is known about the Financial Advisers Disciplinary Tribunal – the body tasked with dealing with complaints from the Financial Markets Authority about authorised financial advisers.

ASSET magazine requested an interview with chairman Sir Bruce Robertson, but was declined. He said that it was unusual for judges to do media interviews.

The independent committee was set up in 2010 but it took until August for the first advisers to appear before it.

The committee conducts disciplinary proceedings arising out of complaints about AFAs, referred to it by the FMA when it thinks that an AFA may have breached the Code of Professional Conduct. It can make determinations and impose a range of penalties, from recommending that an AFA’s authorisation be cancelled to a fine of up to $10,000.

The Financial Advisers Act sets out the committee’s functions but authorises it to determine its own procedures to meet its responsibilities and obligations.

Sir Bruce, a former High Court and Court of Appeal judge, is joined on the committee by Kiwibank’s Tracey Berry, barrister Geoff Clews, AFA and former president of the Institute of Financial Advisers Simon Hassan, investment banker Peter Houghton and former auditor-general David Macdonald.

The Committee must include at least one member who works, or has worked, in the financial adviser industry, at least one member who is independent of the industry and at least one member who is a lawyer with no less than seven years’ legal experience.

When an issue is raised with the committee by the FMA, the authority has to provide a summary of facts in relation to the complaint, the provisions of the code it considers may have been breached, information on whether the AFA plans to take any action against the AFA, relevant documentation and any witness statements.

The committee then decides whether a hearing is necessary. It must tell the AFA, either way. If it is proceeding, the adviser has to be given at least 10 days’ notice of a teleconference, as well as full details of the complaint and the date when the

committee plans to hold a hearing.

Within 10 days, the AFA must respond to the committee, identifying any facts of the complaint that are disputed and supplying any extra relevant documentation. An AFA appearing before the committee can have legal representation, should they wish.

At the teleconference, the committee and AFA discuss the matter under dispute, examine the documents received, deciding whether anyone else needs to attend the proceedings, finding further information, deciding whether independent experts are needed, setting the date for the hearing and deciding the process the parties will follow leading up to and during the hearing.

If the AFA advises the committee in writing that he or she intends to dispute the complaint, the FMA must provide copies of all relevant material relating to the complaint to the AFA, unless it is legally privileged or there is other good reason for withholding it.

Hearings are open to the public.

But where the committee thinks exceptional circumstances apply it may direct that a hearing or part of a hearing be held in private.

The hearing gives all parties the opportunity to present their case. The committee follows the principles of “natural justice”. This means that all parties have a fair opportunity to understand the issues, to consider all the relevant material, and to prepare and present their evidence.

When there is a factual dispute, each party is given the opportunity to put its case and be present when the other party is stating its case. The committee

then makes a decision about the facts presented. The committee will hear evidence as it considers appropriate and may receive evidence which helps it to deal effectively with the matters before it, whether or not that evidence would be admissible in a court of law. Witnesses may be called to give evidence to the committee in the case of a full hearing.

Parties may not need to be physically present at a hearing. In some cases, the committee will be able to decide the dispute by reviewing the written submissions and documents provided by the parties.

At any full committee hearing, any party may make oral submissions and any party who has filed a witness statement must make that witness available for crossexamination, unless otherwise permitted by the committee.

Once the hearing is complete, the committee must give a written statement of its findings to the FMA and the AFA, including its decision on whether the code has been breached, a provisional view of what action might be taken and giving parties the chance to respond.

In determining what actions, if any, to impose on the AFA, the committee may take into account the nature of the charge, the nature of the conduct of the AFA, whether the AFA accepted a breach of the code without the need for a hearing, any other penalties imposed on the AFA for the same conduct, the AFA’s conduct during the investigations, any offer of amends and any previous findings of misconduct against the AFA. The committee must give reasons in writing for any decision or order and provide copies of its decision to the FMA and the AFA. It must advise the AFA in writing of his or her right of appeal and the time within which an appeal must be lodged.

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INVESTMENT

{ INVESTMENT }

{ ANTHONY EDMONDS }

PASSIVES JUST CAN’T HELP GETTING ACTIVE

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t was Monty Python’s Michael Palin who said: “I am very cautious of people who are absolutely right, especially when they are vehemently so.”

I often think of this quote whenever the great “passive versus active” argument flares up in the New Zealand investment management industry.

The passive camp appears to attract zealots who argue vehemently for the righteous cause while quoting at length from global studies.

But we need to consider the active/ passive argument from a New Zealand perspective and relate it to the actual products available to local investors as well as our own market structure and tax rules.

Before writing off all active managers as below-average fee-gougers, let’s consider what the “average” New Zealand fund looks like. Morningstar’s online database includes a grand total of 681 New Zealand funds with just on $36.8 billion under management, of which 50% is invested in the 30 largest funds.

The median fund size is $9 million, with the 472 smallest funds having the same combined total funds under management as the single largest fund.

The only person with any real interest in the “average” Kiwi investment fund will be the one who spots the sizable business opportunity in the fund rationalisation game.

If we narrow the focus to the funds in the Morningstar database within the “NZ Bonds General PIE” category, we find that there are 32 funds available, with 19 of these having less than $10 million each in funds under management.

How many of these funds would you consider using for your clients? A handful at best, I suspect.

Investors and advisers most likely don’t have any real interest in how the median or average active fund performs – they’re more focused on the funds they use.

This is where we can look at data that reflects what is really happening in the industry, such as that supplied in the Melville Jessup Weaver (MJW) Survey to June 30. This quarterly survey of the performance of different fund managers’ investment solutions has a long history.

The funds that make up each category

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in the MJW survey are the same products advisers and their clients are actually using. Within the NZ fixed interest sector the field is narrowed to just five funds with combined assets of $3.99 billion, and include AMP Capital’s fixed interest fund and the likes of Tyndall’s solution.

This graph shows the 10-year returns from MJW Survey for each of the major sectors for the median manager, as well as the benchmark within each sector. In all four of these sectors, the “average” managers have added value relative to their benchmarks.

But this won’t be enough to silence the anti-active crowd, some of whom may point to a few issues with the data.

Some may note, for instance, that the New Zealand fixed interest benchmark is the NZ Government Stock Index, so managers get a bit of a free ride from investing in credit.

But I reckon the concern about benchmarks actually strengthens the case for active management in fixed income.

Yes, NZ fixed income indices are odd, as would you really want a Government-only bond portfolio, or a portfolio comprised of just Government and A-grade corporate securities? If you passively followed the benchmark, that’s exactly what you would get.

There are a couple of other related points that also call into question the feasibility of passive management of NZ fixed income assets.

Firstly, managing a fixed interest portfolio on an indexed basis requires a fair bit of

activity on the manager’s part, including reinvesting coupons, dealing with issues of new securities and managing the maturity of existing securities within a portfolio.

Secondly, there are few decent indexed or passive fixed interest funds available to Kiwi investors that I am aware of.

The practice of buying and holding a portfolio of fixed interest securities is a form of active management, as consideration and thought is put into selecting the securities that are included in the portfolio.

If we turn the argument to NZ equity managers, index-lovers often claim that the added value comes from decisions like holding Australian shares, as opposed to any real “alpha” generation.

But it is worth reminding ourselves that the median NZ shares manager return was 11.1% for the 10 years to June 30, while the ASX 200 Index only returned 9.8% in NZ dollar terms.

The New Zealand share market itself also has some peculiar characteristics that might actually play into the hands of active managers. A couple of years ago the New Zealand Herald provided a breakdown of who was investing in the New Zealand stock market. This data showed professional investors (aka fund managers and groups like the investment team at ACC) make up just 15% of the market.

The remainder of the market is fuelled by retail investors who own shares directly and investors with long-term strategic stakes in companies. These investors have

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no interest in trying to “beat” the market.

If the special nature of the New Zealand equities market tends to favour active managers, does the passive approach make more sense for offshore investments?

Well, maybe, but an interesting feature of the New Zealand active global shares landscape is the predominance of “manager-of-manager” solutions.

This investment approach provides Kiwi investors with access to leading global investment specialists and experts, each of whom have been carefully selected for their specific investment skills and expertise with scant regard given to the concept of investing with “average” fund managers.

Bringing the argument back home, the case for active management is bolstered in New Zealand by our tax laws. For local and global shares we have namely, two different tax treatments that both result in the same outcome. In both sectors outperformance is tax-free, while the cost of obtaining the outperformance (management fees) is tax deductible.

For example, within a New Zealand shares PIE, IRD rules allow tax-free capital gains. Manager outperformance, then, simply increases the tax-free component of the return – the capital gain. Equally, under the Fair Dividend Rate (FDR) regime, any additional return above 5% that a global shares manager ekes out is a tax-free

There is nothing more supremely useless than an average fund manager bonus because the FDR tax is a constant regardless of the return (ignore, for a moment, the serious problems with FDR I outlined in a previous column).

For a Kiwi investor on a 28% PIR rate (in New Zealand shares or global shares), paying 1% of management fees to get 1% of outperformance is a great deal because they should get a tax deduction on the fee (meaning their fee on a net of tax basis is 0.72%), while the gain is free of tax – resulting in a net positive benefit of 0.28%.

I am not sure of anywhere else in the world that this happens, and we managed to achieve it in two sectors using two different tax methodologies!

This underlines why we have to view the passive/active arguments in a local context rather than rely on offshore studies

and experts.

To further muddy the waters for indexinvestors in New Zealand there is a lack of decent passive product structures in some sectors. This creates a big problem for those who argue vehemently against active management – in practice, it’s very difficult to construct a diversified portfolio for a Kiwi client without using active management in some shape or form.

Over the medium term New Zealand’s passive product gap will likely be overcome, driven largely by KiwiSaver providers. The temptation for some will be to adopt lowcost passive solutions in most sectors. This may lead to the evolution of decent passive products for all sectors – which is positive for the industry as a whole.

Active and passive solutions are both important tools. The application and use of these solutions will depend on the circumstances of the investor.

New Zealand is unique from an investment perspective for a whole range of reasons, from the size and composition of our markets, application of our tax rules, and our ability (or inability) to access different solutions globally.

Any commentary on the merits of active and passive management needs to be based on the unique circumstances that exist in our industry and market, not on slavish deference to international academia.

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PRACTICE MANAGEMENT

{ PRACTICE MANAGEMENT }

MEASURING RISK TOLERANCE: AVOID STANDARD QUESTIONNAIRES BY: Paul Resnik, Finametrica

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he previous article in this series, “Using Psychometrics to Assess Risk Tolerance,” argued that psychometrics, a blend of psychology and statistics, was the best methodology for assessing risk tolerance.

Psychologists have spent more than 100 years developing psychometrics; yet the financial services industry is largely unaware of this discipline, which has had dire consequences for the accuracy of financial planners’ estimates of their clients’ risk tolerance.

Instead, the vast majority of planners use some form of a readily available risk

questionnaire. Perhaps the planners develop the questionnaire themselves.

Regardless, many advisers should be aware that industry-standard risk questionnaires are not a panacea to determine risk tolerance.

Two Problems Usually comprised of five to 20 questions, standard questionnaires are neither valid nor reliable. They are arbitrarily constructed without any scientific discipline, containing too many bad questions that are irrelevant or too

technical and not enough good questions that are essential for acceptable reliability.

Years ago, it was not uncommon to find questions relating to physical risk tolerance in questionnaires designed to measure financial risk tolerance. Today, too many risk tolerance questionnaires deal with financial matters that have little to do with risk tolerance. This stems from ubiquitous asset allocation calculators designed to produce an asset allocation (or model portfolio) recommendation based on brief questionnaires about risk tolerance, time horizon, withdrawal expectations, investment experience, risk capacity, and

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other areas.

Although time horizon and other matters are relevant to investment advice, they are not relevant to risk tolerance, so the first problem with standard questionnaires is that they include irrelevant questions. With low financial literacy as a major obstacle, the second problem is that they use too many technical terms.

The conceptual flaws in industrystandard questionnaires are evident in practice. Although a number of research studies prove these surveys produce unreliable results, the most definitive research comes from Dr. Douglas Rice of Golden Gate University, who tested 131 industry-standard questionnaires: “The findings show alarming results.

For example, when all questions were answered in the most conservative way possible, the percentage of assets allocated to equities ranged from 0 to 70%. When answered in the most aggressive way, the percentage of assets allocated to bonds, or bonds and cash, ranged from 0 to 50%.

This is perhaps the most telling finding of the entire study.”

Making mistakes about the client’s risk tolerance will not necessarily result in dangerous advice.

Advisers’ Estimates Although most advisers use some form of questionnaire, other professionals rely on their interviewing skills to determine a client’s risk tolerance. But psychology tells us that interview-based assessments are even less reliable than test-based assessments, even when the interviewer is a highly-trained professional.

Given the shortcomings of the approaches used by advisers, it is not surprising that advisers’ estimates of client risk tolerance are alarmingly inaccurate, with estimates typically correlating to test results at only ~0.4. Industry research shows that advisers assign too much diagnostic value to certain demographic variables to estimate risk tolerance, including gender, income, wealth, and marital status.

In addition, strong evidence exists of gender stereotyping. Advisers overestimated the risk tolerance of male clients and underestimated the risk tolerance of female clients—a problem that is as true for female advisers as for male advisers.

Although some may not be too

concerned about a correlation of 0.4, what does it mean for an adviser’s clients?

It actually means that there are gross errors in one in six cases.

Thinking in terms of clothing sizes, this is the equivalent of mistaking a small for a large or even a XXL. Given that risk tolerance is normally distributed and most responses will cluster around the mean, advisers would be more accurate if they made no effort to assess their clients’ risk tolerances at all and simply assumed everyone was average.

Advisers’ Responses Changing the way an adviser works with his or her clients is difficult. Advisers using industry-standard approaches are reluctant to accept that their estimates might be inaccurate. Even if they realise other estimates might be inaccurate, many advisers believe they, themselves, are the exception to the rule, mistaking experience for expertise.

Possibly not coincidentally, advisers have high risk tolerance—significantly higher than investors, which can lead to its own set of problems—and risk tolerance correlates with overconfidence.

Corporate management often acknowledges that psychometric testing is a superior methodology. But large companies are reluctant to make this kind of testing mandatory because of resistance from some advisers who are often big producers.

Companies also are reluctant to make testing optional because this leads to two different compliance regimes, thereby raising difficulties in defending the nonpsychometric approach. It is also often the case that a company’s compliance department developed the current questionnaire and does not want to be seen to be acknowledging its shortcomings.

Making mistakes about the client’s risk tolerance will not necessarily result in dangerous advice. However, some clients will be overexposed to risk, which can have disastrous consequences in a market downturn. Increasing anxiety can cause a panicked sale at or near the bottom, destroying financial and emotional well-being.

Advisers aspiring to meet a professional standard must ensure that they have a proper understanding of their clients’ risk tolerance, without which they cannot act in their clients’ best interests. The evidence of the failure of the industrystandard approaches to meeting this obligation is overwhelming—don’t rely on these questionnaires just because they are easy to obtain and easy to complete. In the long run, the client suffers, and you put your practice at risk.

Ask CCH

From the CCH tax analysts QUESTION:

A look-through company (LTC) provides labour-only services to one customer. The company’s shares are held 50/50 by a husband and wife, with all the services performed by the husband. How do the personal services income attribution rules operate alongside the LTC rules?

Will the income be split 50/50 between the shareholders?

ANSWER:

For the purposes of applying the attribution rule for income from personal services, an LTC is treated as the associated entity and is not treated as transparent. The net income derived by the LTC will be attributed to the person performing the services (ie the husband), and the LTC's income will not be split 50/50 between the shareholders.

Get fast answers to your everyday tax and legal questions...

The CCH Question and Answer service allows you to ask CCH Analysis everyday questions on tax, trusts and investments.

Be the one who has All the answers  s ubstitute your research time with income earning work  b uy yourself more time by having someone else to do the research  h ave peace of mind with the support of a second opinion  s ave consultant fees for simple queries  g et answers to your complex questions  k eep accurate records, as answers are provided in writing  e xtend your areas of expertise by having expert support in a variety of fields

Call CCH today to find out more on 0800 500 224 or go to www.cch.co.nz/qanda References: Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill.

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KIWISAVER

{ KIWISAVER }

Fighting for true independence He’s sold his house, signed off from paid employment and set out to offer truly independent financial advice to workers around the country. Some might say it’s a high price to pay for freedom, but Austin Fisher says if he didn’t take the chance, he’d always wonder ‘what if’. BY: Amanda Morrall

C

an you be a truly independent financial adviser in today’s increasingly competitive and highly regulated market and still make a living?

Sceptics would say no but it’s a risk Austin Fisher, a former workplace superannuation specialist with ASB and AMP, is willing to take for the sake of professional and personal peace of mind and happiness.

He is planning to offer no-obligation, financial literacy-boosting talks at workplaces around the country.

On July 4th, deliberately timed to coincide with American Independence Day, the father of five raised his own version of the stars and stripes as a signal to both the industry and the public.

Unshackled from commissions, kickbacks or “passive free lunches,” Fisher is determined to brand himself as the guy you can trust on the grounds he’s not selling you anything.

“The whole point is to be truly independent.’’

So what’s his angle and how will he monetise his existence?

His plan is simple and his purpose quite clear; he wants to help New Zealanders become a financially-savvier bunch not by raiding their pockets through hidden

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fees and product promotion but by arming them with information and encouraging them to take a more active interest in their financial welfare.

Rather than trying to contrive ways to get them into his door, he’s going directly to theirs.

Not at home but at work; where he sees the greatest potential to capture the attention of New Zealanders that could most benefit from a higher degree of financial literacy.

“Peoples’ relationship with their employer is all about money, pretty much,” says Austin.

“Yes, there’s a job you want to do and you want to do it well but a lot of stressors are around money. And for a session like this, [he plans on offering one-hour workplace talks] it’s a neutral place as well. You’re not at home but you’re familiar with your surroundings and you are not

under pressure.”

While Fisher used to run similar sessions for ASB and AMP, the key distinction is he’s not pushing anything other than information. His talks, which he’ll customise for his clients, will include a range of personal financial topics including debt reduction, saving, investing, retirement planning and of course KiwiSaver, now the number one workplace saving platform.

By distancing himself from banks, and other providers of KiwiSaver with a vested interest in workplace penetration, Fisher hopes his business will appeal to a broad range of employers many of whom he felt were becoming increasingly wary of financial service sector professionals.

“During my time at ASB, I felt like there was a certain pushback from employers,” he says.

The feeling that he couldn’t speak as freely as he wanted too didn’t sit well with him either.

“If I went to a workplace to speak to 100 people about KiwiSaver it got more and more important to track how many people joined your product, that sort of thing and that’s not my motivation. My motivation has to do with spreading and lifting financial literacy giving people more confidence to manage their money.

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“I wanted people to know more about what they have [available to them], getting them more educated as to how things worked with their insurance and KiwiSaver but without necessarily trying to sell them a product. I thought if I could get that bit out of it and be hired purely for my financial advisory chops then that would be perfect.”

Fisher describes the last few years in the industry as uncomfortable ones, at best, given the scale and impact of finance company calamities.

“I feel like I’ve been watching slow crashes from the sidelines and I haven’t been able to do anything about it. If I started to bad-mouth the finance companies because I didn't agree with what they were doing they’d say, ‘that’s what you’d say because you’re working for a bank’. At the same time, working for a bank you couldn’t say anything anyway. When you’re independent you can say what you like and that’s really one of the main reasons why I enjoy my current position.”

Given the rigours of the Financial Advisers Act and the new regulatory framework under the Financial Markets Authority, Fisher sees a distinct upside for employers who choose to outsource this kind of work to an authorised financial adviser.

“The benefits to the employer is that should questions on the floor arise relating to financial advice, the employer isn’t actually under the gun there. I can navigate the difference between personalised advice and generalised and should there ever be a future dispute, it would be up to me to sort that out.”

As an authorised financial adviser, Fisher is required to belong to a nominated dispute resolution scheme - something which affords those employees who participate in his talks a measure of protection if they act on advice they feel was inappropriate or financially injurious.

Fisher doesn’t foresee this happening because the nature of his talks will be generic and because he won’t be steering any of his participants into a particular product.

“I think that’s a benefit to larger employers that they don’t have to worry about having a session that they do themselves and then as a result some year’s down the line somebody makes a decision on that and thinks it was the

Austin Fisher

For now, I’m living somewhere really nice and I’m happy and I’m not in debt anymore. I will do it for a year or two and if it doesn’t work I’ll slink back and find an employer wrong thing to do.

“I will have a more formal idea of what’s being said and also there is a mechanism for dealing with potential conflict.”

The uptake for Fisher’s personal finance seminars remains to be seen however preliminary spring bookings have Fisher encouraged.

He says those who see the broader benefits of a more financially literate workforce will welcome him.

“My angle for employers is financial health and safety. There is a big focus on health and safety to the point where normal presentations have become a bit

same old same old.”

Fisher sees employer-sponsored money talks as being a prime place for helping to educate employees on the basics of KiwiSaver.

Despite the massive subscription, and the industry heralding it an unrivalled superannuation success story, there remains widespread ignorance about important features, like fees, fund types and performance. Fisher believes employers have a responsibility to fill in the information gaps.

“Half of all the members joined by changing jobs and being allocated a scheme and yet nobody talks to those people to explain how it works,” says Austin.

“I talk to some people who have never engaged with their provider. Sometimes they don't even know who their provider is at all. People at the workplace often don’t get anybody speaking to them unless they are trying to sell them something.”

In theory, Fisher’s no-strings-attached advisory offer should be an easy sell but he’s realistic about the personal risk he’s taken on by cutting himself free of commissions and such.

To help with the inevitable cashflow crunch he sold his house so he can live debt-free as a renter while he gets his business off the ground.

A steep price to pay for freedom?

“Sure there’s a bit of terror with what’s happening around the housing market.

For most people, their financial security is tied up with the value of their house and now their KiwiSaver and if they both go belly up, which I witnessed in the UK, it’s pretty scary.”

To Fisher’s mind living in fear of being caught outside the housing market is preferable to living with the regret of not having pursued a dream. If the worst-case scenario is reverting to a 9-5 existence, it’s a fate he’s willing to accept for having at least tried to carve a niche for himself as a “true independent”.

“For now, I’m living somewhere really nice and I’m happy and I’m not in debt anymore. I will do it for a year or two and if it doesn’t work I’ll slink back and find an employer and say hello.”

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{ SPECIAL REPORT }

YOU GET WHAT YOU PAY FOR ETPs are popular but sometimes a hands-on approach is better BY: Clayton Coplestone

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“

rice is what you pay, value is what you get,” is a well-worn “Buffettism”. But it provides a useful introduction into the role and risks of exchange-traded products (ETPs) in portfolios.

As the financial services industry has evolved, so has the ability for institutions and private investors to access a diverse range of assets. Now ETPs and, more specifically, exchange-traded funds (ETF) are all the rage, attracting over USD$2 trillion in global assets.

The main appeal for investors remains the low cost and perceived simplicity, although the growing complexity of the various ETF products has created issues around their suitability for investors.

More than 80% of the ETF market is equity-based.

The first issue to consider is whether the underlying features of the ETF match the investor’s circumstances. Understanding the type of market conditions in which ETFs are likely to outperform, the structure of the ETF, and the impact on the investor’s diversification at the asset class and portfolio levels are also important considerations.

The evolution of the ETF market has increased the complexity of the underlying structures to include physical and synthetic ETFs. Physical ETFs directly invest into the assets, either by full replication where

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That’s not to suggest that ETFs are any better off than a funds manager facing a large redemption. they aim to generate the same return as the index or by sample replication. The latter ETFs invest in a sample basket of the underlying index, and are popular when tracking indices comprising a large number of shares.

But ETFs don’t always follow the sector or exchange they’re supposed to, due to shortcomings that affect their tracking errors.

The popular market capitalisation weighted indices are structured to represent the total market capitalisation of the companies weighted by the size of the overall market. The performance of larger companies with a higher weighting in the index has a greater impact on the

performance of the overall index.

An ETF that replicates an index will buy the companies that have been outperforming and reduce their holding to companies that have been underperforming - meaning the ETF may be buying increasingly expensive companies.

As a company’s share price becomes cheaper, ETFs will sell down their exposure in the company. This overweighting of overvalued companies and underweighting of undervalued companies may contribute to a higher tracking error than expected.

Synthetic ETF structures use derivatives to generate the same total return as the index, and include total return swaps, forward contracts, futures contracts and options.

While the synthetic participants advocate lower overall investment costs, reduced tracking error and access to markets which are difficult to be invested in physically, they tend to provide less transparency and greater risk.

The major synthetic providers are reacting to the growing negative sentiment towards synthetic ETFs by reducing counterparty risk through diversification across a number of participants, and resetting swaps on a daily basis.

One area where synthetic ETFs have been used widely is with commodity ETFs. In many cases, these track the price of a commodity through the futures markets,

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buying the contract closest to expiry.

As the weeks pass and the contract nears expiration, the ETF provider will sell to avoid taking delivery and buy the next month's contract. This operation, known as the "roll", is repeated every month. If contracts further from expiration have higher prices, the roll into the next month will be at a higher price, which incurs a loss.

Even if the spot price of the commodity stays the same or rises slightly, the ETF could still show a decline. The opposite is true, if futures further away from expiration have lower prices, the ETF will have an upward bias. The divergence caused by this can be large.

Trades in ETFs tend to become more likely to fail in volatile markets because of the complex way in which new ETF shares are created. During these times large financial institutions exchanging the baskets of underlying securities with funds managers for new ETF shares can experience lengthy delays, leading to failed trades and a lack of liquidity.

And this is not limited to equity ETFs. As interest rates trend higher, some market participants are expressing concerns over bond-related ETFs’ ability to meet large

redemptions. Last month, a major global bank that is an authorised participant creating and redeeming ETF shares suspended redemptions on some ETFs, stoking liquidity concerns over the bond ETF market.

That’s not to suggest that ETFs are any better off than a funds manager facing a large redemption. But investors should be aware that since ETFs are traded on an exchange, they would likely face a widening bid/ask spread.

The magnitude of the operational risks associated with ETFs has also caught the attention of global regulators such as the Bank of International Settlements and Financial Stability Board, who have repeatedly warned investors about the potential significant systemic failures associated with ETFs. As the demands for more ETF flavours have expanded, participants have been enticed into a number of thinly-defined markets that focus on illiquid stocks, foreign stocks and bonds. These nETFs can be subject to diverse levels of tracking error. Whilst sector, international and dividend ETFs tend to have higher absolute tracking errors than broad-based equity

and bond ETFs, the prominent contributor to tracking error appears to be high management expense ratios (MERs).

As with managed funds, ETFs pool investor assets and buy stocks or bonds according to a basic strategy spelled out when the ETF is created. Because they trade like stocks, ETFs can be sold short, with many having related options contracts, allowing investors to control large numbers of shares with less money than if they owned the shares outright.

The wisdom for including index-type ETFs in a portfolio is that active fund managers are unable to add value to stock selection net of the active fee levels, as markets are perfectly efficient. With some investment advisers demonstrating that they can consistently select active fund managers that outperform relative indices after fees, ETFs may not be appropriate contributors towards achieving investor’s risk-return objectives.

Advisers using ETFs need to be fully aware of the implications in terms of the investor’s specific circumstances and objectives and their overall impact upon a portfolio’s risk profile. As is often the case in life, you get what you pay for.

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ASSET ADVISER

{ MANAGED FUND PERFORMANCE TABLES } Latest 1 Yr 3 Yr 5 Yr Size Morningstar Transaction Return Return Rating Return $M Overall Exit Price %

Name

New Zealand Insurance Fund Cash AMP KiwiSaver Cash Fund 1.3117 2.82 2.99 3.56 AMP Prem PSS OnePath NZ Cash 1.4158 2.93 3.10 3.49 AMP PSS Select Cash 1.3449 2.63 2.77 3.10 ANZ KiwiSaver-Cash 1.1672 2.81 3.00 3.12 Aon KiwiSaver OnePath Cash 13.7323 2.61 2.74 3.21 Aon KiwiSaver Tyndall Cash 12.6317 3.56 3.40 3.88 ASB KiwiSaver Scheme's NZ Cash 1.2595 2.83 2.66 3.11 Asteron Rtrmnt Savings Plan Deposit 9.7505 3.76 3.36 3.68 Asteron Super Yield Deposit Fund 9.7741 3.76 3.36 3.68 Asteron Superplan 2000 Capital Fund 2.0483 3.67 3.39 3.86 Asteron Superplan Capital Fund 2.457 3.15 2.87 3.38 FC KiwiSaver Scheme's NZ Cash 1.2583 2.82 2.64 3.10 Grosvenor KiwiSaver Enhanced 1.3368 3.26 3.97 Income Fund Mercer KiwiSaver Cash -3.04 3.34 3.31 Mercer Super Trust KiwiSaver Cash -3.04 3.25 3.13 OnePath KiwiSaver-Cash Fund 1.2545 2.86 3.09 3.36 SIL 60s + Sup Cash Fund 1.9721 2.36 2.54 2.98 SIL Cash Plus 1.9721 2.36 2.54 2.98 SIL KiwiSaver-Cash Fund 1.2172 2.67 2.84 2.98 Staples Rodway KiwiSaver Conservative -3.06 3.06 3.15 TOWER KiwiSaver Preservation 2523.21891 3.45 3.17 3.60 Westpac KiwiSaver-Cash Fund 1.2244 2.96 2.87 3.14 TOWER KiwiSaver Preservation 2516.21926 3.61 3.20 3.82 Westpac KiwiSaver-Cash Fund 1.2208 2.91 2.85 3.31 New Zealand Insurance Fund Cash Non-PIE Fidelity Life Cash Portfolio 3.0827 1.83 1.77 -New Zealand Insurance Fund Equity Region Asia Pacific Asteron Superplan 2000 Far East Fund 1.0525 5.19 -2.08 -10.32 Asteron Superplan Far East Fund 1.5452 4.37 -2.83 -7.26 SIL 60s + Sup Pacific Basin Share 1.7028 6.86 3.50 0.32 SIL P/R Pacific Basin Fund 1.7028 6.86 3.50 0.32 New Zealand Insurance Fund Equity Region Australasia Aon KiwiSaver Milford 1.9962 25.45 15.77 -Asteron Superplan 2000 Trans Tasman 2.6778 26.18 12.74 6.91 Fund Asteron Superplan Trans Tasman Fund 3.4322 25.44 12.03 6.20 Grosvenor KiwiSaver Socially Responsible 1.2164 15.33 6.55 -Grosvenor KiwiSaver Trs-Tasm Sm 1.0932 5.45 1.41 -Coms Shr Mercer Super Trust KiwiSaver Shares -24.08 11.15 6.35 Mercer Super Trust KiwiSaver -30.18 14.42 5.55 TransTasman Milford Active Growth KiwiSaver 2.0002 25.72 15.85 13.37 NZ Guardian Trust GIFs - Small Companies 3.8769 23.88 8.46 6.14 SIL KiwiSaver-Australasian Share 1.0867 28.04 15.20 7.99 Smartshares Smartkiwi Growth Fund 0.8754 21.50 8.86 2.78 New Zealand Insurance Fund Equity Region Emerging Markets Asteron Superplan 2000 Emerging Mkt Fd 1.3409 -0.25 -2.08 -5.24 Asteron Superplan Emerging Markets 1.1203 -1.07 -2.83 -5.97 Fund TOWER FreedomPlan-Emerging Markets 2.19992 6.87 -3.17 -3.95 TOWER FuturePlan-Emerging Markets 2.19992 6.87 -3.17 -3.95 New Zealand Insurance Fund Equity Region Europe Asteron Superplan 2000 European Fund 1.8209 33.67 9.04 1.99 Asteron Superplan European Fund 2.1679 32.81 8.28 1.27 New Zealand Insurance Fund Equity Region North America Asteron Superplan 2000 Nth Amrn Fd 1.7217 26.38 12.12 4.56 Asteron Superplan North American Fund 2.4687 25.57 11.36 3.83 New Zealand Insurance Fund Equity Region NZ AMP Prem PSS OnePath NZ Shares 1.5214 24.48 14.43 8.37 Asteron Rtrmnt Savings Plan NZ Equity 2.5295 26.70 12.98 7.07 Asteron Superplan 2000 NZ Shares Fund 2.1464 26.28 12.78 6.95 Asteron Superplan 2000 NZ Smaller 3.3262 23.47 8.77 6.42 Compns Asteron Superplan NZ Shares Fund 1.9454 25.41 11.99 6.42 Asteron Superplan NZ Smaller Compns Fd 3.0127 22.67 8.05 5.77 SIL 60s + Sup NZ Share Fund 3.4642 28.56 15.47 8.28 New Zealand Insurance Fund Equity Region NZ Non-PIE Fidelity Life NZ Shares Portfolio 4.1213 15.39 5.84 3.60 New Zealand Insurance Fund Equity Region World AMP Prem PSS FD Intl Share Fund 1 Value 0.8736 26.70 7.08 -2.49 AMP Prem PSS FD Intl Share Fund 0.92 24.35 8.45 -1.96 3 Growth Asteron Rtrmnt Savings Plan Intl Eqty 1.9592 24.74 8.56 2.22 Asteron Superplan 2000 Aggressive Fund 1.5104 13.81 5.44 0.12 Asteron Superplan 2000 Global Fund 1.5984 24.17 8.40 1.63 Asteron Superplan Aggressive Fund 1.4378 12.98 4.78 -0.56

032

40.99 4.68 2.07 147.62 3.05 1.25 235.69 3.68 5.20 3.86 29.60 8.85

-------------

15.98

--

10.68 1.98 1.49 1.26 1.54 18.78 17.04 22.11 192.59 21.82 184.82

------------

3.37

--

1.18 10.96 0.22 3.15

   

58.39  2.55



16.37   8.28 3.41



1.34



1.39



145.49  9.40  14.13  17.62  0.48

--

2.49

--

2.10 24.11

---

1.70 13.63

---

1.48 12.63

---

4.80  1.32  0.54  1.70



1.03 3.48 2.65

  

1.51



5.47



5.40



3.54 0.55 1.41 4.72

   

Name

Latest Transaction Exit Price 1.9063

1 Yr 3 Yr 5 Yr Size Morningstar Return Return Rating Return $M Overall % 23.03 7.52 0.86 17.09 

Asteron Superplan Global Fund FC KiwiSaver Scheme's Active High 1.0208 25.55 8.61 1.34 Growth FC KiwiSaver Scheme's Global Sustain 1.4904 25.69 9.54 7.07 Grosvenor KiwiSaver International Share 1.2437 22.90 6.66 -Mercer Super Trust KiwiSaver Global -21.40 9.60 5.87 NZ Guardian Trust GIFs - Global Equity 1.4362 24.48 9.17 2.34 SIL 60s + Sup International Share Fund 2.1429 27.32 10.70 4.56 SIL International Share 2.1429 27.32 10.70 4.56 SIL KiwiSaver-International Share 1.1081 28.03 11.25 4.97 SIL KiwiSaver-Sustainable Growth Fund 1.1499 19.74 7.21 2.98 TOWER FreedomPlan - Int'l Companies 2.17998 19.15 7.76 1.52 TOWER FuturePlan - Intl Companies 2.17998 19.15 7.76 1.52 TOWER KiwiSaver Equity 2857.85929 18.89 7.89 2.54 New Zealand Insurance Fund Equity Region World Non-PIE Fidelity Life Aggressive 2.4217 15.16 1.49 1.23 Fidelity Life International 1.7871 20.86 4.11 0.24 New Zealand Insurance Fund Equity Sector Global - Real Estate Mercer Super Trust KiwiSaver Real Assets -12.37 8.96 3.95 SIL KiwiSaver-International Property 0.9515 11.79 13.78 4.08 New Zealand Insurance Fund Equity Sector NZ - Real Estate MFL Property Fund 2.6739 19.95 16.88 8.35 SIL KiwiSaver-Australasian Property 1.1709 17.75 17.68 8.82 New Zealand Insurance Fund Global Bond AMP Prem PSS Blackrock Global Fixed Int 1.6054 2.44 4.71 6.27 AMP Prem PSS PIMCO Global Fixed 1.8266 2.87 7.38 8.74 Interest AMP Prem PSS SSgA Global Fixed 1.606 2.78 4.90 6.28 Int Index Asteron Rtrmnt Savings Plan Intl Fx Int 2.7771 2.61 4.95 6.05 Asteron Superplan 2000 Global Bond Fund 2.4942 2.10 4.72 6.10 Asteron Superplan Global Bond Fund 2.3589 2.02 4.71 6.08 Mercer Super Trust KiwiSaver Fixed Intr -4.17 4.51 5.22 SIL KiwiSaver-International Fixed Int 1.3908 1.47 4.60 6.44 New Zealand Insurance Fund Miscellaneous Fidelity KiwiSaver-Options Kiwi Fund 4.77397 9.71 5.57 6.36 Westpac KiwiSaver-Capital Protect Plan 1 1.5 24.24 11.23 -Westpac KiwiSaver-Capital Protect Plan 2 1.3464 24.23 11.22 -New Zealand Insurance Fund Miscellaneous Non-PIE Fidelity Life Options Portfolio 3.7748 7.13 4.10 4.21 New Zealand Insurance Fund Mortgages Non-PIE Fidelity Life Mortgage 3.5706 3.17 2.76 3.29 New Zealand Insurance Fund Multisector - Aggressive AMP KiwiSaver LS Aggressive Fund 1.0517 19.27 9.35 3.19 AMP PSS DynamicMkts Growth 1.357 17.00 8.82 2.31 AMP PSS Select Growth 1.2756 17.05 8.87 2.41 Aon KiwiSaver Russell Lifepoints 2045 5.6004 26.74 11.99 6.01 Brook Professional KiwiSaver Growth 1.3726 18.85 8.46 5.21 Fund Brook Professional KiwiSaver Growth 1.3726 18.85 8.46 5.21 Fund Fidelity KiwiSaver-Aggressive Kiwi Fund 3.23963 16.98 7.33 4.93 Fisher Funds Growth KiwiSaver Fund 1.3385 22.35 10.10 8.71 Grosvenor KiwiSaver Geared Growth Fund 1.3308 17.09 6.00 -Grosvenor KiwiSaver High Growth Fund 1.0491 17.20 6.09 2.44 Mercer KiwiSaver High Growth -18.47 9.28 4.69 Mercer Super Trust KiwiSaver High -18.56 9.24 6.47 Growth TOWER FreedomPlan - Growth 2.05531 15.48 6.53 2.77 TOWER FuturePlan - Growth 2.05531 15.48 6.53 2.77 TOWER KiwiSaver Growth 1.18007 17.32 9.00 5.06 New Zealand Insurance Fund Multisector - Aggressive Non-PIE AMP PRP Dynamic 1.5868 16.37 7.22 1.04 New Zealand Insurance Fund Multisector - Balanced AMP KiwiSaver LS Balanced Fund 1.216 13.20 8.14 4.85 AMP KiwiSaver LS Moderate Balanced 1.2299 11.30 7.28 4.60 Fund AMP KiwiSaver TOWER Balanced Fund 1.2594 12.36 7.28 5.13 AMP PSS DynamicMkts Balanced 1.4523 11.50 7.43 4.00 AMP PSS Lifesteps Consolidation 1.4165 9.73 6.61 3.79 AMP PSS Lifesteps Progression 1.4657 11.64 7.49 4.08 AMP PSS Select Balanced 1.4046 11.59 7.48 4.00 ANZ KiwiSaver-Balanced 1.2817 14.74 9.97 6.96 Aon KiwiSaver OnePath Balanced 17.6198 14.56 10.53 8.61 Aon KiwiSaver Russell Lifepoints 2025 6.3461 17.42 10.16 7.23 Aon KiwiSaver Russell Lifepoints Bal 6.1642 19.99 10.70 7.20 ASB KiwiSaver Scheme's Balanced 1.2162 14.29 8.86 5.59 Asteron Rtrmnt Savings Plan Mgd Neutral 2.3805 15.08 8.73 5.10 Asteron Super Yield Managed Fund 12.0369 16.05 8.75 5.19 Asteron Superplan 2000 Balanced Fund 1.9011 14.82 8.24 4.33

2.64



5.06 3.62 1.43 6.04 0.83 10.94 21.36 1.63 2.95 27.52 30.59

          

1.67  0.68  0.85 5.12

 

437.00  8.43  2.27



2.55  8.17



1.22 0.99 1.45 1.25 2.07

    

64.76 10.20 8.73

----

23.26

--

2.91

--

140.27  3.41  31.31  6.45  6.39  6.39  16.38  588.64  2.95  68.74  34.94  7.89  7.58  75.36  100.41  102.25



239.21  224.08  14.06  2.65  7.79  3.89  48.80  515.37  11.90  7.74  33.64  323.05  14.10  18.73  8.24 

Latest 1 Yr 3 Yr 5 Yr Size Morningstar Transaction Return Return Rating Return $M Overall Exit Price % Asteron Superplan Balanced Fund 2.4525 13.98 7.42 3.58 61.30  Brook Professional KiwiSaver Balanced Fd 1.3255 13.73 6.52 4.23 1.73  Brook Professional KiwiSaver Balanced Fd 1.3255 13.73 6.52 4.23 1.73  FC KiwiSaver Scheme's Active Balanced 1.1893 14.57 7.65 5.10 24.41  Fidelity KiwiSaver-Balanced Kiwi Fund 6.70844 12.62 6.99 5.66 100.72  Fidelity KiwiSaver-Ethical Kiwi 2.63652 14.40 8.05 5.01 9.96  FirstChoice KiwiSaver Scheme's Balanced 1.2136 14.29 8.85 5.59 23.22  Grosvenor KiwiSaver Balanced Fund 1.2772 8.73 5.78 4.61 100.59  Mercer Super Trust KiwiSaver Moderate -11.80 7.19 5.73 31.54  Milford KiwiSaver Balanced 1.3532 20.26 11.95 -- 18.80  OnePath KiwiSaver-Balanced 1.2286 12.03 9.05 6.10 14.77  SIL KiwiSaver-Balanced 1.2942 14.83 9.99 7.11 226.54   Smartshares Smartkiwi Balanced Fund 1.04127 13.27 6.45 3.13 6.33 TOWER FreedomPlan - Balanced Fund 2.95688 10.99 6.63 4.11 12.12  TOWER FuturePlan - Balanced 2.95688 10.99 6.63 4.11 136.49  TOWER KiwiSaver Balanced 3478.46896 12.04 7.43 5.20 310.03  Westpac KiwiSaver-Balanced Fund 1.2319 14.55 9.26 6.29 474.61  Westpac Retirement Plan - Balanced Port 2.6763 13.18 7.91 4.39 93.53  New Zealand Insurance Fund Multisector - Balanced Non-PIE Fidelity Life Balanced 3.4048 10.48 5.32 4.28 27.54  Fidelity Life Ethical Portfolio 2.4211 12.27 5.74 -- 0.45  New Zealand Insurance Fund Multisector - Conservative AMP KiwiSaver Default Fund 1.2841 6.34 4.95 4.22 485.45  AMP PSS Select Income 1.5311 0.90 4.33 5.79 2.98  ANZ KiwiSaver-Conservative 1.3085 6.82 6.62 6.02 275.13  Aon KiwiSaver Russell Lifepoints Cnsrv 7.178 10.33 8.66 8.34 52.54  ASB KiwiSaver Scheme's Cnsrv (Default) 1.3266 6.01 5.63 5.42 1647.72  Fidelity KiwiSaver-Capital Guarant Kiwi 2.52367 5.53 4.68 4.55 35.29  FirstChoice KiwiSaver Scheme's Conserv 1.3244 5.99 5.61 5.42 78.93  Fisher Funds Conservative KiwiSaver Fund 1.2153 8.40 6.46 -- 196.02  Mercer KiwiSaver Conservative (Default) -7.77 5.90 5.53 712.71  OnePath KiwiSaver-Conservative (Default) 1.3219 6.01 6.64 6.08 670.90  SIL KiwiSaver-Conservative 1.3208 6.93 6.69 6.14 245.17  Smartshares Smartkiwi Conservative Fund 1.25526 8.87 5.51 4.05 2.81  TOWER FuturePlan - Capital Protected 1.14388 1.62 1.89 2.29 35.50  TOWER KiwiSaver Cash Enhanced 1.32211 5.52 5.67 5.08 461.05  (Default) SIL KiwiSaver-Conservative 1.3073 8.81 7.27 6.29 238.07  Smartshares Smartkiwi Conservative Fund 1.24686 8.50 5.17 3.87 2.92  TOWER FuturePlan - Capital Protected 1.14207 1.71 1.91 2.45 35.82  TOWER KiwiSaver Cash Enhanced 1.31149 7.78 6.21 5.20 457.07  (Default) New Zealand Insurance Fund Multisector - Conservative Non-PIE Fidelity Life Conservative 3.6721 6.09 4.75 4.58 35.88 -New Zealand Insurance Fund Multisector - Growth AMP KiwiSaver LS Growth Fund 1.1059 16.71 8.76 3.66 190.23  AMP KiwiSaver OnePath Balanced 1.3663 18.59 11.22 7.50 58.54  Plus Fund AMP KiwiSaver Tyndall Balanced Fund 1.2092 13.36 8.06 5.10 10.58  AMP PSS Lifesteps Growth 1.3724 14.65 8.24 2.89 1.25  ANZ KiwiSaver-Balanced Growth 1.2531 18.81 11.47 7.23 408.97  ANZ KiwiSaver-Growth 1.2178 22.87 12.97 7.43 767.77  Aon KiwiSaver Russell Lifepoints 2035 5.9816 22.22 11.13 6.65 6.83  Aon KiwiSaver Russell Lifepoints Growth 5.9119 24.50 11.61 6.68 12.52  Aon KiwiSaver Tyndall Balanced 12.3219 13.12 7.86 5.01 3.17  ASB KiwiSaver Scheme's Growth 1.1412 18.86 10.08 5.17 304.88  Asteron Rtrmnt Savings Plan Mgd Growth 2.3159 18.62 9.41 4.90 25.59  Asteron Superplan 2000 Dynamic Fund 1.8244 17.64 8.70 3.98 1.90  Asteron Superplan Dynamic Fund 2.1 17.61 8.09 3.41 17.54  FC KiwiSaver Scheme's Active Growth 1.1248 19.17 8.48 4.81 23.99  Fidelity KiwiSaver-Growth Kiwi Fund 6.44432 15.79 7.69 4.72 44.67  FirstChoice KiwiSaver Scheme's Growth 1.1382 18.87 10.07 5.11 19.44  Forsyth Barr KiwiSaver Balanced Port 1.1811 9.18 5.31 2.90 8.02   Forsyth Barr KiwiSaver Growth Portfolio 1.1078 11.95 5.82 1.76 7.11 Grosvenor KiwiSaver Balanced Growth 1.2054 12.48 5.88 -- 37.10  Mercer KiwiSaver Balanced -13.63 7.84 5.14 43.41  Mercer Super Trust KiwiSaver Active Bal -13.61 7.78 5.27 50.05  Mercer Super Trust KiwiSaver Growth -15.61 8.45 4.89 4.48  OnePath KiwiSaver-Balanced Growth 1.1813 15.28 10.23 6.07 17.29  OnePath KiwiSaver-Growth 1.1348 18.74 11.45 5.91 15.48  SIL 60s + Sup Balanced Fund 2.9441 17.18 10.87 6.86 18.26  SIL Balanced Plus 2.9441 17.18 10.87 6.86 73.97  SIL KiwiSaver-Balanced Growth 1.2678 18.94 11.59 7.42 209.22  SIL KiwiSaver-Growth Fund 1.229 22.95 13.01 7.60 149.23  Staples Rodway KiwiSaver Balanced -16.68 11.28 5.95 15.37  Staples Rodway KiwiSaver Growth -13.48 7.71 4.68 8.39  Westpac KiwiSaver-Growth Fund 1.2079 18.57 10.79 6.61 283.68  Westpac Retirement Plan - Dynamic Port 2.8832 17.29 9.73 4.81 95.76  Staples Rodway KiwiSaver Balanced 0 19.65 11.52 5.24 14.60 

Name

WWW.GOODRETURNS.CO.NZ

ASSET ISSUE 124 --FINAL .indd 32

20/08/13 12:54 PM

ASSET ADVISER

For more information visit www.morningstar.co.nz

Latest 1 Yr 3 Yr 5 Yr Size Morningstar Transaction Return Return Rating Return $M Overall Exit Price % Staples Rodway KiwiSaver Growth 0 15.45 8.09 3.95 8.08  Westpac KiwiSaver-Growth Fund 1.1766 20.05 10.72 5.62 264.05  Westpac Retirement Plan - Dynamic Port 2.8107 18.78 9.66 4.00 94.01  New Zealand Insurance Fund Multisector - Growth Non-PIE Fidelity Life Growth 3.1164 14.26 5.59 3.27 8.54  New Zealand Insurance Fund Multisector - Moderate AMP KiwiSaver LS Conservative Fund 1.3742 6.32 5.91 5.61 108.95  AMP KiwiSaver LS Moderate Fund 1.2852 8.88 6.60 4.90 152.83  AMP PSS DynamicMkts Conservative 1.5112 5.11 5.09 4.70 0.80  AMP PSS Lifesteps Maturity 1.4413 5.20 5.14 4.72 2.64  AMP PSS Lifesteps Stability 1.4718 7.46 5.92 4.25 4.44  AMP PSS Select Conservative 1.501 5.16 5.11 4.75 10.46  ANZ KiwiSaver-Conservative Balanced 1.3007 10.77 8.39 6.57 275.09  Aon KiwiSaver Russell Lifepoints 2015 6.8201 12.09 9.05 7.90 4.00  Aon KiwiSaver Russell Lifepoints Mod 6.7414 14.95 9.68 7.87 8.66  ASB KiwiSaver Scheme's Moderate 1.2812 9.42 7.26 5.67 440.04  Asteron Rtrmnt Savings Plan Mgd Conserv 2.3908 9.30 7.37 5.98 2.13  Asteron Superplan 2000 Conservative Fund 1.9584 8.78 6.93 5.33 2.32  Asteron Superplan Conservative Fund 2.1969 8.05 6.08 4.61 5.44  FC KiwiSaver Scheme's Active Cnsrv 1.296 9.50 6.44 5.79 6.48  Fidelity KiwiSaver-Conservative Kiwi Fd 6.81354 8.36 6.57 5.67 43.67  FirstChoice KiwiSaver Scheme's 1.271 9.42 7.25 5.60 18.68  Moderate Grosvenor KiwiSaver Conservative Fund 1.3221 4.27 5.70 5.34 35.68  Mercer Super Trust KiwiSaver Conserv -7.83 5.61 5.29 2.25  OnePath KiwiSaver-Conservative 1.2789 8.91 7.90 6.14 5.35  Balanced SIL KiwiSaver-Conservative Balanced 1.3134 10.90 8.47 6.72 81.11  TOWER KiwiSaver Conservative 1.36266 6.86 6.24 5.61 71.81  Westpac KiwiSaver-Conservative Fund 1.294 7.60 6.76 5.71 1031.31  Westpac KiwiSaver-Conservative Fund 1.2804 9.97 7.37 5.78 968.43  New Zealand Insurance Fund NZ Bonds AMP Prem PSS OnePath NZ Fixed Interest 1.5725 -0.35 5.72 6.12 2.31  Asteron Rtrmnt Savings Plan NZ Fixed Int 2.6855 2.64 6.53 7.02 1.27  Asteron Superplan 2000 NZ Bond Fund 2.3273 2.13 6.05 6.29 1.61  Asteron Superplan NZ Bond Fund 2.9712 2.13 6.08 6.32 7.17  SIL 60s + Sup Capital Stable 2.4589 -0.50 5.24 5.21 4.10  SIL KiwiSaver-New Zealand Fixed Interest 1.3679 0.00 5.71 5.65 5.74  SIL NZ Fixed Interest 2.4589 -0.50 5.24 5.21 7.06  Westpac Retirement Plan - Accum Port 2.9375 1.24 2.75 3.22 20.94  New Zealand Insurance Fund NZ Bonds Non-PIE Fidelity Life NZ Fixed Interest 3.5021 2.59 3.56 4.18 0.56  New Zealand Insurance Fund Unlisted and Direct Property - NZ Asteron Rtrmnt Savings Plan NZ Property 3.4113 ---- 0.92 -Asteron Superplan 2000 Property Fund 1.8381 12.04 14.22 1.17 1.16 -Asteron Superplan Property Fund 1.6247 11.30 13.10 0.12 1.76 -TOWER FreedomPlan - Property Fund 3.58575 9.40 4.36 3.81 0.93 -TOWER FuturePlan - Property 3.58575 9.40 4.36 3.81 7.48 -New Zealand Insurance Fund Unlisted and Direct Property - NZ Non-PIE Fidelity Life Property Portfolio 3.9251 12.48 10.15 6.89 0.75 -New Zealand OE Cash AMP Capital Cash Advantage Fund 1.28134 3.44 3.57 3.90 244.49 -AMP Capital NZ Cash Fund 1.60241 3.26 3.46 3.97 3232.14 -AMP Prem PUT OnePath NZ Cash 1.2563 2.85 2.99 3.39 4.50 -AMP PUT Select Cash 1.2122 2.54 2.70 3.02 3.84 -ASB Cash Fund -3.15 3.25 3.56 486.10 -Public Trust Cash Management Fund 1.2099 2.10 2.25 2.76 24.71 -TOWER Cash Fund 1.18 2.42 2.57 3.03 26.84 -Westpac Cash Plus Trust 1.2239 3.04 3.15 3.49 62.83 -New Zealand OE Cash Non-PIE AMP UT NZ Cash 1.7126 1.83 1.88 2.68 2.02 -New Zealand OE Equity Region Asia Pacific Non-PIE AMP UT Asian Shares 1.3644 20.55 1.19 2.97 1.37  New Zealand OE Equity Region Australasia AMP Capital Equity Opportunity 1.52657 21.98 14.36 11.42 23.26  Brook Alpha Fund 3.3459 24.87 7.26 6.03 14.70  Brook Tasman Fund 1.1696 30.40 12.09 8.49 9.31  Devon Alpha Fund 1.1687 25.90 8.25 -- 40.75  Devon Trans-Tasman Fund 2.6534 18.66 8.76 5.02 68.12  Harbour Australasian Equity 1.3327 33.50 13.63 -- 44.78  Milford Active Growth 1.9962 25.45 15.77 13.32 604.68  Milford Trans-Tasman 1.5912 24.39 15.59 12.02 182.89  Mint Australia NZ Active Equity 1.4795 33.32 18.45 11.24 11.06  OnePath Equity Selection Fund 1.5618 23.91 13.86 7.33 14.90  Perpetual Australasian Shares 1.1589 22.81 --- 27.07 -Pie Australasian Growth Fund 2.93 34.28 28.22 28.24 46.54  Tyndall Aggressive Australasian Equity 1.2197 24.96 8.85 7.92 1.52  Tyndall Small Companies Fund 1.3779 24.50 9.58 -- 0.64  Name

Latest 1 Yr Transaction Return Exit Price % New Zealand OE Equity Region Australia AMP Capital Australian Share Fund 2.05127 9.57 Devon Australian 1.1028 11.88 Fisher Funds Australian Growth Fund 2.7241 21.11 Fisher Funds Premium Australian Fund 1.1883 21.96 OnePath Australian Share Fund 3.4748 17.30 New Zealand OE Equity Region Australia Non-PIE AMP UT Australian Shares 2.2233 10.60 New Zealand OE Equity Region NZ AMP Capital NZ Shares Fund 1.87131 25.03 AMP Capital Strategic NZ Shares Fund 1.67912 27.17 AMP Prem PUT OnePath NZ Shares 1.5431 24.69 Brook Premium Share 1.3373 33.32 Fisher Funds NZ Growth Fund 4.7412 33.04 Fisher Funds Premium New Zealand Fund 1.1045 32.53 OnePath New Zealand Share Fund 2.6782 28.62 TOWER Trans Tasman Equity Trust 3.1558 26.71 Tyndall Core NZ Equity Fund 1.1971 27.81 New Zealand OE Equity Region NZ Non-PIE AMP UT NZ Shares 2.1988 22.91 New Zealand OE Equity Region World AMP Capital Core Global Shares Fund 0.88607 26.20 AMP Capital Core Hedged Global 0.93322 28.57 Shares Fd AMP Capital Emerging Markets Share 0.82984 7.72 AMP Capital Global Shares Fund 1.74944 26.13 AMP Capital Resp Invest Leaders Gl Sh 1.08462 23.92 AMP Prem PUT FD Intl Share Fund 1 Value 0.9128 26.73 AMP Prem PUT FD Intl Share Fund 0.9482 24.26 3 Growth AMP Prem PUT SSgA Global Shares Index 1.1806 25.94 AMP Prem PUT SSgA Global Shares 1.4831 30.89 IndexHdg ASB EasyFund World Shares Fund 1.0185 24.88 Brook Walter Scott Global Share Fd 1.2215 16.18 Elevation Capital Value Fund 1.2861 23.56 Fisher Funds International Growth Fund 1.2461 16.76 Fisher Funds Premium International Fund 1.2697 16.48 OnePath International Share 1.2781 30.26 TOWER Global Fund 3.729 23.22 New Zealand OE Equity Sector Global - Real Estate AMP Capital Global Propty Securities Fd 1.0987 14.36 ASB EasyFund Global Property Fund 0.9356 10.37 New Zealand OE Equity Sector NZ - Real Estate AMP Capital Listed Property Secs Fd 1.7804 16.56 ASB NZ Property Trust 1.0981 9.04 Mint Australia NZ Real Estate Investment 1.2322 16.20 OnePath Property Securities Fund 2.069 17.44 New Zealand OE Global Bond AMP Capital Hdgd Gbl Fixed Intrst Fund 1.92137 2.90 AMP Prem PUT Blackrock Global Fixed Int 1.4993 2.32 AMP Prem PUT PIMCO Global Fixed 1.8308 3.13 Interest AMP Prem PUT SSgA Global Fixed 1.4928 2.77 Int Index ASB EasyFund World Fixed Interest Trust 1.0034 0.27 TOWER BondPlus Fund 1.7491 2.83 New Zealand OE Miscellaneous Fisher Funds Property and Infrastructure 1.3987 16.02 Pathfinder Commodity Plus Fund 0.9712 -4.41 Tyndall Income Fund 1.1576 5.81 New Zealand OE Mortgages Westpac Home Loan Trust 1 2.30 Westpac Mortgage Investment Fund 1 2.38 New Zealand OE Mortgages Non-PIE AMP PMF - Mortgage Investment 152.697 0.29 New Zealand OE Multisector - Aggressive AMP Capital Growth Fund 1.86667 16.40 AMP PUT DynamicMkts Growth 1.3806 16.72 AMP PUT Select Growth 1.2233 16.81 Public Trust Growth Priority Fund 1.5116 19.11 New Zealand OE Multisector - Aggressive Non-PIE AMP UT Dynamic 1.6686 17.05 New Zealand OE Multisector - Balanced AMP Capital Balanced Fund 1.96675 12.28 AMP PUT DynamicMkts Balanced 1.4387 11.47 AMP PUT Select Balanced 1.3564 11.44 Name

3 Yr 5 Yr Size Morningstar Rating Return Return $M Overall 4.63 -10.59 11.00 5.68

2.35 -8.50 8.82 4.28

45.61 29.98 78.88 56.76 35.25

 -  

4.29

1.94

1.81



14.05 12.86 14.45 -20.76 20.89 15.56 12.41 13.21

7.29 7.06 8.40 -9.64 10.30 8.15 6.97 --

453.97  420.02  2.49  3.04 -108.86  38.82  32.93  38.05  6.48 

11.54 5.13 8.45

2.53



0.62 330.12 

14.83 2.63 556.51  1.86 11.68 10.18 6.76

-0.25 3.37 3.55 -2.49

90.27  158.14  25.79   2.24

8.25 -1.98 1.84



9.25



2.26

2.97

14.33 6.08

4.34 

10.40 7.34 7.27 3.16 3.35 13.31 8.00

128.94  34.86  11.47  14.34  25.53  37.61  75.23 

3.25 --4.81 5.18 6.86 4.73

15.78 6.09 142.23  10.81 2.79 54.89  17.19 -- 21.57   7.03 -6.59 2.66 15.75 7.80 25.92  17.44 8.80 65.90  4.94 4.54

7.41 189.83  6.19 1.45 

7.41

8.73

3.33 

4.90

6.25

4.05

-7.66

-- 21.86 -8.04 170.05 

7.58 0.46 7.01

-- 11.94 -- 39.97 7.65 4.73

----

2.36 2.43

2.79 123.16 2.86 238.06

---

-0.76 -0.10 4.64

--



9.17 8.72 8.76 10.14

2.75 4.78  2.32 3.09  2.28 11.71  5.65 8.06 

8.45

2.02

8.18 7.34 7.38

4.63 43.19  3.87 3.65  3.94 29.91 

8.96



Latest 1 Yr 3 Yr Transaction Return Return Exit Price % ANZ Mdg Invmt Fds Balanced 1.2674 14.60 9.60 ASB EasyFund Balanced 1.1459 13.65 8.19 Milford Balanced 1.3507 20.01 11.88 Public Trust Balanced Fund 1.6982 11.95 8.01 Public Trust Balanced Growth Fund 1.4718 14.63 8.51 Public Trust Moderate Growth Fund 1.474 12.44 7.73 Westpac Active Balanced Trust 1.574 14.47 8.54 New Zealand OE Multisector - Balanced Non-PIE AMP UT Balanced 1.828 11.52 7.11 AMP UT Balanced - Other 1.5837 11.45 7.09 New Zealand OE Multisector - Conservative AMP PUT Select Income 1.4283 0.81 4.29 ANZ Mdg Invmt Fds Conservative 1.2013 6.68 6.39 ASB EasyFund Defensive 1.276 5.37 4.98 Public Trust Defensive Fund 1.478 5.49 5.43 New Zealand OE Multisector - Growth ANZ Mdg Invmt Fds Balanced Growth 1.306 18.78 11.31 ANZ Mdg Invmt Fds Growth 1.3291 22.55 12.55 ASB EasyFund Growth 1.0641 18.18 9.34 Diversified Wealth Management Balanced 1.1077 6.74 1.40 OnePath Balanced Fund 2.1007 17.21 11.04 Public Trust Capital Growth Fund 1.7284 16.71 9.42 TOWER Multi Sector Fund 2.3626 12.98 7.93 Westpac Active Growth Trust 1.4665 18.26 10.03 TOWER Multi Sector Fund 2.3234 17.96 8.42 Westpac Active Growth Trust 1.4284 19.78 9.92 New Zealand OE Multisector - Growth Non-PIE AMP PMF - Active Growth 1.8285 10.02 4.94 AMP UT Legg Mason Balanced 1.3863 10.14 5.34 New Zealand OE Multisector - Moderate AMP Capital Conservative Fund NZ 1.96306 5.50 5.64 AMP PUT DynamicMkts Conservative 1.4719 5.10 5.04 AMP PUT Select Conservative 1.4799 5.12 5.07 ANZ Mdg Invmt Fds Conservative 1.2364 10.36 8.01 Balanced ASB EasyFund Conservative 1.2341 6.60 5.71 ASB EasyFund Moderate 1.2127 8.83 6.62 Brook Income 1.0627 11.00 -Milford Income 1.2562 17.21 13.24 Public Trust Conservative Fund 1.4785 9.89 6.99 Westpac Active Conservative Trust 1.5044 6.75 5.71 New Zealand OE Multisector - Moderate Non-PIE AMP PMF - Balanced 2.1552 7.11 4.50 AMP UT Conservative 1.8369 5.05 4.78 New Zealand OE NZ Bonds AMP Capital NZ Fixed Interest Fund 1.55583 1.03 5.97 AMP Capital NZ Short Duration 1.1957 3.68 3.93 AMP Prem PUT OnePath NZ Fixed Interest 1.4721 -0.41 5.63 Harbour NZ Corporate Bond 1.0283 4.42 5.53 OnePath Secure Income Accumulated 1.3801 -0.59 5.12 Public Trust NZ Bond Fund 1.6188 -0.08 5.02 Tyndall Corporate Bond Fund 1.0895 4.77 6.64 New Zealand OE NZ Bonds Non-PIE AMP UT NZ Fixed Interest 1.711 0.34 3.86 New Zealand OE Unlisted and Direct Property - NZ AMP Capital NZ Property Fund 1.58482 9.06 4.91 New Zealand OE Unlisted and Direct Property - NZ Non-PIE AMP UT NZ Property 1.3254 8.27 4.12 Name

5 Yr Size Morningstar Rating Return $M Overall -- 34.80  4.99 70.94  -- 37.31  6.17 4.69  5.54 9.98  5.67 5.57  4.72 95.03  3.68 15.04  3.67 0.85  5.70 4.38  -- 25.19  4.83 111.02  5.43 9.30  --4.38 2.20 7.14 5.84 5.00 4.99 4.35 4.01

57.38 13.80 18.44 21.68 31.45 3.61 11.32 42.49 11.15 40.95

         

3.41 17.45   2.10 1.71 5.32 13.81  4.64 1.42  4.71 15.10  --

32.87 

4.72 4.97 --5.50 4.18

257.44  100.37  3.01 -463.98  11.04  76.65 

3.56 35.35  4.44 0.90  7.85 4.66 6.03 -5.11 6.93 --

1584.14  76.31  2.83  111.00  7.42  2.77  104.80 

4.90

0.85 

--

231.64

--

-7.47 2.17

--

Returns are calculated to 31/05/13. Returns are calculated before tax and after fees, except for the non-PIE categories, which are after tax and after fees. For more information about this table and the methodology behind the data, contact helpdesk.nz@morningstar.com or go to www.morningstar.co.nz © 2012 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. To the extent that any of this information constitutes advice, it is not personalised and has been prepared by Morningstar Research Limited (a subsidiary of Morningstar, Inc.) without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant Investment Statement before making any decision to invest.

Neither Morningstar nor Morningstar’s employees can provide you with personalised financial advice. To obtain advice tailored to your particular circumstances, please contact a professional financial adviser.

033

ASSET ISSUE 124 --FINAL .indd 33

20/08/13 12:54 PM

ASSET ADVISER

{ DATA } ASSET DATA - PIE FUNDS Institution

FundName

Min.

FROM DEPOSITRATES.CO.NZ

Rate.

30%

33%

CASH FUNDS

Institution

FundName

Min.

Rate.

30%

33%

TERM FUNDS - 150 days

ANZ

Call Fund

$2,000

2.60

2.69

2.81

BNZ

Term PIE

$5,000

3.3

3.38

3.53

ASB Bank

Cash Fund

$500

3.15

3.29

3.44

Kiwibank

Term Deposit Fund

$10,000

3.6

3.7

3.86

BNZ

Cash PIE

$1,000

3.3

3.44

3.6

Westpac

Term PIE Fund

$10,000

3.25

3.34

3.49

Direct Broking Call Account

Call Account

$1

2.8

2.92

3.05

TERM FUNDS - 6 months

Heartland Bank

Call PIE

-

4.1

4.28

4.48

ASB Bank

Term Fund

$10,000

3.75

3.85

4.02

Kiwibank

PIE Online Call Fund - Base

$2,000

2.4

2.5

2.61

BNZ

Term PIE

$5,000

3.8

3.97

4.14

Kiwibank

PIE Online Call Fund no withdrawals

$2,000

3.15

3.29

3.44

Co-operative Bank PIE Term Fund

$5,000

4

4.11

4.3

Nelson Building Society

Lifestages PIE

$10,000

3.75

3.9

4.08

Kiwibank

Term Deposit Fund

$10,000

3.75

3.85

4.02

RaboDirect

Term Advantage Fund

$1,000

4

4.11

4.3

RaboDirect

Cash Advantage Fund

$250

3.3

3.44

3.6 Westpac

Term PIE Fund

$10,000

3.75

3.86

4.03

SBS Bank

Lifestages

$5,000

3

3.11

3.28

Spicers

Premium Plus

$5,000

2.75

2.85

2.98

TSB Bank

Cash Fund

-

3.75

3.9

4.07

Westpac

Online Bonus Saver PIE - (Potential Rate)

$500

4

4.18

4.37

Westpac

Online Bonus Saver PIE (base)

$500

0.1

0.1

0.11

Westpac

Online Saver PIE

$500

3

3.12

3.26

TERM FUNDS - 9 months ASB Bank

Term Fund

$10,000

4

4.18

4.37

BNZ

Term PIE

$5,000

3.9

4.08

4.26

Westpac

Term PIE Fund

$10,000

3.8

3.9

4.08

$10,000

3.85

4.02

4.2

$5,000

4

4.18

4.37

TERM FUNDS - 12 MONTHS ASB Bank

Term Fund

BNZ

Term PIE

Heartland Bank

Term Deposit PIE

$1,000

4.5

4.7

4.91

Kiwibank

Term Deposit Fund

$10,000

4.2

4.32

4.51

RaboDirect

Term Advantage Fund

$1,000

4.11

4.22

4.41

Westpac

Term PIE Fund

$10,000

3.85

3.96

4.14

TERM FUNDS 90 DAYS ANZ

Term Fund

$5,000

3

3.08

3.22

ASB Bank

Term Fund

$10,000

3

3.08

3.22

BNZ

Term PIE

$5,000

3.3

3.38

3.53

Kiwibank

Term Deposit Fund

$10,000

3.3

3.38

3.53

RaboDirect

Term Advantage Fund

$1,000

3.25

3.34

3.49

Westpac

Term PIE Fund

$10,000

3

3.09

3.22

ASB Bank

Term Fund

$10,000

4.15

4.33

4.52

BNZ

Term PIE

$5,000

4.1

4.28

4.48

Westpac

Term PIE Fund

$10,000

4.1

4.2

4.39

TERM FUNDS - 18 MONTHS ASB Bank

Term Fund

$10,000

4.15

4.33

4.52

BNZ

Term PIE

$5,000

4.1

4.28

4.48

Westpac

Term PIE Fund

$10,000

4.1

4.2

4.39

TERM FUNDS -24 MONTHS

TERM FUNDS -24 MONTHS ASB Bank

Term Fund

$10,000

4.2

4.4

4.59

BNZ

Term PIE

$5,000

4.2

4.4

4.59

Westpac

Term PIE Fund

$10,000

4.2

4.32

4.51

ASB Bank

Term Fund

$10,000

4.2

4.4

4.59

BNZ

Term PIE

$5,000

4.2

4.4

4.59

Westpac

Term PIE Fund

$10,000

4.2

4.32

4.51

TERM FUNDS -5 YEARS

TERM FUNDS 120 DAYS BNZ

Term PIE

$5,000

3.5

3.58

3.75

Kiwibank

Term Deposit Fund

$10,000

3.3

3.38

3.53

Westpac

Term PIE Fund

$10,000

3.25

3.34

3.49

034

Bruce Cortesi

ASB Bank

Term Fund

$10,000

4.7

4.93

5.15

BNZ

Term PIE

$5,000

5.1

5.36

5.6

WWW.GOODRETURNS.CO.NZ

34 the nz mortgage mag

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2013

Brought to you By new zealand property investor • propertyinvestor.co.nz apartments ad-1.indd 1 ASSET ISSUE 124 --FINAL .indd 35

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CONNECTING YOU to New Zealanders who need cover that flexes with their earning potential

Sovereign Loss of Earnings gives your clients with variable incomes the best of both worlds.

At claim time your clients choose an agreed sum assured or indemnity calculation – whichever benefits them the most.

> In many situations, Loss of Earnings will pay more at claim time than other types of income protection

Benefits that connect.

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