Of the 17 written plans we received, 10 were investment plans and 7 were pre-retirement plans. In this article we can’t deal with all the issues our research uncovered for both types of plans, but we can cover some of the worst ones. 

Lack of advice

Some of our shoppers were looking for pre-retirement planning advice. They had – or were likely soon to have – significant mortgages and other debts. Some had bank deposits and other investments and most were in KiwiSaver schemes. They were looking for savings and expenditure budgets that would help them meet their short-term goals and eventually provide a retirement nest-egg. Some also needed advice about insurance, wills and enduring powers of attorney.

There was a lack of meaningful advice in plans prepared for these shoppers – most were of little practical help.

Only one (Trustees Executors) had a detailed action plan and gave good reasons for the advice offered. This was the only pre-retirement plan rated as “good” by the panel; the rest were either “disappointing" (one plan) or “rejected” (five plans). The seven pre-retirement plans weren’t cheap – the cost ranged from zero to over $1200. Trustees Executors’ plan was the most expensive. (See What we found for more details.)

Poor analysis

There was little analysis of what would happen if our shoppers carried on with what they were doing now.  The analysis of other options available to the shopper was often inadequate as well. Advisers should be providing detailed analysis and a rationale for their recommendations.

Not giving shoppers a meaningful explanation of why they should take up the recommended investment strategy was common. What were the benefits and cost? How did the strategy compare with other options?

This was a particular problem in the six investment plans where the shopper was advised to put most of their money with one provider group. Was the recommended provider the one with the most resources, the best people, or the best-value funds? What was its track record? Who was it compared with? Or did the adviser have a tie to one provider and so would never recommend anyone else?

Inappropriate advice

Some shoppers were advised to invest too much in managed funds at a time when it was likely they would also have a large mortgage.

The panel’s view was that these shoppers were likely to be far better off repaying their debt. Even those who were advised to invest significantly in a managed fund would be paying more in mortgage interest than they’d earn from the fund. (Advisers, of course, don’t receive commissions from providers for recommending debt-reduction strategies.)

Another issue was advisers recommending managed funds that had relatively high fees and were held inside a portfolio administrative service (a “wrap platform” - see the jargon buster). Our panel thought that, for several of the plans it reviewed, cheaper funds or other investment options would do the job just as well at less cost.

The panel was also concerned that a number of advisers recommended using a “wrap platform” to hold the shoppers existing investments when the only administration required was annual tax accounting. At the very least, a comparison of the good and bad points of the various administrative options should have been supplied.