Do-it-yourself investors, or DIY, are a relatively new class of investor in New Zealand. While traditionally Kiwis invested in managed funds or through their financial advisors, new technology allows Kiwis to manage their money by themselves. DIY investing keeps costs low, interests aligned, and the average Kiwi DIY investor can capture more of the returns for themselves, rather than turning it over to a fund manager.
The asset-under-management (AUM) model of financial advising becomes extremely expensive the longer you pay for it. Even a seemingly small fee of 1% or 2% per year can quickly add up to hundreds of thousands or even millions of dollars in lost gains.
In the example below, both investors invest $750 per month for 40 years. The investor with the financial advisor charging 1.25% ends the 40 year investment period with $1 million less than the DIY investor. Where did that $1 million go? Into the pockets of the financial advisor.
Why Some Kiwis Love Do-It-Yourself Investing
DIY investors are generally financial literate investors that don’t use AUM financial advisors. They might enjoy managing their investments themselves, or they understand the impact of costs and therefore don’t want to lose a large percentage of their returns to an investment manager that doesn’t add any value.
But surely a fund manager adds enough returns to offset their high fees? The data says otherwise. In 2024, 58% of New Zealand Equity funds underperformed the NZX 50 Index. That’s over half of funds!
It gets even worse in the long run. In a 15 year period, from 2009-2024, 85% of actively managed funds that invest in the New Zealand share market underperformed just buying the entire NZX 50 Index. And for NZ funds that invest in the global share market, 100% of funds underperformed the global share market. That is an atrocious record.
Some Kiwi investors have had bad experiences with asset managers or they don’t trust asset managers to safely handle their money.
What’s the alternative? Advise Only Financial Advisors
The alternative to the asset under management model is advise only financial planning. This allows DIY investors to cost-effectively engage financial professionals to offer knowledge, advice, and wisdom to the investing client, but doesn’t require any transfer of investment assets to the advisor.
Clients can save a fortune over their investing lifetime. Advisors can give their best advise without consideration of commissions or retaining assets under management. It allows everyone’s interests to align.
When to Talk to an Advice Only Financial Advisor
DIY investors might want to talk to a advise only financial advisor, like Spencer Reese from Simple Money, during certain phases of life. For example, they might have a windfall from selling a business or receiving an inheritance. Or they may be moving on from their AUM financial advisor as they realize there is no guarantee of outperformance but there is a guarantee of extra costs.
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