Help! I'm lost.
Aug 6, 2017
If you would prefer to listen to me read this blog post, please click on the play button.
Call me useless but I did manage to lose my daughters Managed Fund. If ever there was a “first world problem” then this is it. And I apologise if that makes me sound like a bit of a w**ker (rhymes with banker), but hear me out. I of course remembered that she HAD it but month by month as I updated my spreadsheet (a collective ahhhhh for the love of a good spreadsheet here) the balance of her fund was missing, because due to “the law of unintended consequences” I received no statement and could not access it online anymore. I instead guessed an amount and put that down. Extremely scientific and I’m sure you are pleased I am not an accountant.
How on earth did I lose it? I place the blame squarely at the feet of the ANZ bank and their monolithic and complex banking systems.
Years ago (I think it’s been about three and a bit years) I wanted to start putting money aside in an investment for her and with the help of an Authorised Financial Adviser (AFA) the following fund was opened:
ANZ Investment OneAnswer Investment Fund (multi-asset class) Growth Fund (yep, the title is actually that long)!
Ever since I have direct credited $50 per month into the fund and bit by bit it has been growing and is showing some good returns (currently 8.15%).
At the same time she had her KiwiSaver with:
ANZ Investment OneAnswer Kiwisaver Growth Fund
Ever since she was born I have been putting $40 per month into that fund as well.
She is certainly being overpaid for the amount of housework she does, that much I can tell you, but she is pretty cute so I let it slide! And, if she earns some money herself then that is being put into her fund, so she can start to get a feel for investing.
By the way, introducing your kid to money is actually the best education you can give YOURSELF. You are working with much smaller sums (at least in the beginning) so you can really try a few investments out and work out if it is going to be appropriate. They certainly have time on their side to make up for any investment boo boo’s their parents may make on their behalf. 😬
All was right with the world until I changed her KiwiSaver provider from ANZ to Simplicity back in March 2017. Unbeknownst to me at the time, this cut the umbilical cord to her other fund, so I stopped being able to view her balance online.
Money was still leaving my account each month headed off to her fund, wherever that was, so there was no great urgency to search for it. Finally, this week it was time to go looking so I rang up ANZ. Once I gave them the correct details they tracked down her fund relatively quickly and advised me of the current balance of $2911.
At the same time I emailed the AFA who set her up and he sent me through a statement as well. But then it got complicated. The guy on the phone at the ANZ was good to deal with but even he was scratching his head about how I could keep track of the fund myself. I don’t want to have to phone/email for such a simple question about the balance of her account. After being put on hold a bit so he could ask around he came up with the solution that I open an account for her with their bank and link this fund to it. The account has no fees and I only need to leave $1 in and not actually use it.
That’s all well and good but it seems pretty clunky to me. I had also been thinking it was time to set up her very own bank account but I never intended it to be with this bank. Ummm, what to do?
The whole experience got me thinking. The fund she is in is a GROWTH FUND so at the top end of risk and there is a general consensus that
MORE RISK = MORE FEES
To quote the Financial Markets Authority:
“You should only pay higher fees if you’re confident you’ll be persistently rewarded with returns high enough to make it more financially worthwhile than an investment with lower fees.
High risk and high fees often come together. This is based on the assumption that whoever is making the investment is so skilled at managing the high risk, they persistently produce high returns regardless. This is quite an assumption to make. You need to be very comfortable the skill is present before you invest”.
This fund has an Annual fund charge of 1.44% (Mustachians I just heard your sharp intake of breath!) She only has a small amount in the fund at the moment but I was always planning this to be a very very long term investment for her. With everything I am learning about the impact of fees on your investment return this led me to a calculator (www.moneysmart.gov.au). The percentage of 1.44 seems tiny, but it is actually HUGE and in the long term scheme of things this is really going to erode her return.
Year 1 $32 (difference in return with a fee of 1.44% vs .5%)
Year 2 $72
Year 3 $127
Year 4 $195
Year 5 $277
Year 6 $374
Year 7 $491
Year 8 $628
Year 9 $787
Year 10 $972
Managed funds fee calculator from MoneySmart. Click on image to enlarge.
Nope, this won’t do, this won’t do at all. As she becomes more aware of saving and investing (at age nine she is now starting to understand) I want her to feel in control of what her money is invested in and where she can find it AND I want her money to achieve maximum growth and not be eroded by fees. The graph above shows how they can thousands of dollars off her balance. Therefore, I’ve printed out the three page “Form 7 - Withdrawal Form” that my AFA sent to me and I’m going to close the fund.
Birds of a feather flock together so she is going to be hitching a ride on the ETF train and follow in the footsteps of her Mummy and Daddy by buying into SmartShares NZ Top 50 (fee of .5%) and US 500. Although they will be accessed via my logins and I will retain control of these, they will be listed with her name and she will be given her own Common Shareholder Number (CSN) so will remain quite distinct from my own holdings. When she comes of age and can prove to me that she won’t spend the lot on clothes, a car or god forbid on her boy/girl friend, I will sell these and she can then reinvest entirely independently of Jonny and I.
She will also be following through on my theory of “never take financial advice off people who have no money”. I’m proud to say that after years of diligent saving and investing we are two people she can now look up to as people who can guide her. Once again, she is going to be SO EXCITED when I pick her up from school and talk through the reasons why I am making changes to ‘her money’. See, she really does earn the money I invest on her behalf each month, I’m effectively paying her to listen and I feel more confident with each passing year that it is beginning to sink in.
