Money in the media, July/August

I haven't written any "Weekend reading" articles recently. This hasn't stopped me from collecting a pile of clippings and links. I'll have missed many good articles, but some that are on my pile/list from recent weeks include:

  • Shamubeel Eaqub, author of Generation Rentexplains that he recently bought a house. "The fundamental reason why we paid such an eye-watering amount of money for a house is security." He notes that New Zealand's policy settings could be different, and provide this type of security for renters, if we followed the lead of other countries such as Germany and Switzerland. 
  • Martin Hawes has been on a good run:
  • He says you should "Scrap the fund manager performance fees". He explains that "I like performance but I do not like performance fees". The idea of charging a performance fee for aligning the interests of investment managers and investors "needs to be exposed for the nonsense it is". In short, like everyone else, fund managers should do their job, and shouldn't be paid extra for doing it to the highest of their ability. I couldn't agree more.
  • He discusses Claire Matthews' recent study, which indicates that Kiwis need $486k of savings to fund a "comfortable" lifestyle in a big city. He acknowledges that "You need to be careful about all these studies and figures: they are averages and contain a lot of assumptions which may or may not apply to you. We all live differently before retirement - and in retirement we continue to live differently." He points out an important axiom, that "the savings rate usually beats the investment rate". And even if you aren't going to get to $486k, don't give up. Every cent helps.
  • Hawes also reminds us that plenty of people work even when they don't need to. In particular, he refers to 2013 Census data indicating that 40% of people over 65 work. It's unclear how many of these people do it because they need to, or because they want to. This is something I've been thinking about A LOT and will return to in this blog at a later point. 
  • Janine Starks explains that it's not just first home buyers who are going to the Bank of Mum and Dad - it's also "second steppers" who are looking to upsize. (I have to add: if you're looking at helping your kids to buy a home, look at your financial situation to see if you can really afford it. I've seen people do it and really compromise their retirement outcomes by doing so. Also, seek legal advice. If you don't structure it right, your money could end up with your child's ex-partner or you may find that you need residential care but don't have the funds to pay for it.)
  • Susan Edmunds continued to be prolific. I'll have missed many of her articles, but some of her articles included:
  • Recent research indicating that many health insurance policies do not provide much cover for mental illness. It's another illustration that not all policies are alike. It's tempting to compare policies on the basis of price, but there are many cases where it's worth paying extra for a higher quality product. 

 

  • Mary Holm continues to educate:
  • In her most recent column, she quotes a reader who makes a distinction between types of fee-only advisers. (In the interest of full disclosure, the letter writer was me): 

"When it comes to advisers, a characteristic that I think will become increasingly relevant is whether the adviser charges asset-based fees or not (that is, a percentage of the funds under advice).

"Asset-based fees are better than commission, but they still create conflicts of interest. For example, if a client receives a windfall, it makes it harder for the adviser to recommend paying off the mortgage (where they won't receive any ongoing remuneration) rather than investing in financial assets (where they will be remunerated).

"I'm also not convinced that advising someone with a portfolio of $800,000 is four times as hard, time-consuming, or risky, compared with advising someone with a portfolio of $200,000, and that the client should therefore be charged four times the amount.

"Asset-based fees also create a situation where even if advisers don't advertise a minimum initial investment, they are going to be far less interested in a young couple with $50,000 or a retiree with $150,000 than someone who has a lot more money (and might arguably get less marginal benefit from receiving quality advice)."

Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at www.wealthandrisk.nz.

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.