Case studies

Below are recent examples of how good advice pays dividends. All are real situations but client names have been removed and minor modifications made to preserve client confidentiality. However, the amounts mentioned are absolutely correct.

The personalised financial advice described may not apply to your individual situation. We recommend that before you make any decisions on investments, mortgages, insurance or other financial matters that you contact us to receive your own personalised financial advice.

For privacy and to preserve client confidentiality, client names have been removed and minor modifications have been made.

Unnecessary insurance cover

Situation

Leading Hand Abbie rang the Milestone Direct help desk to enquire about switching her KiwiSaver to the New Zealand Defence Force KiwiSaver Scheme. As part of that discussion, she mentioned she had two insurance policies her bank told her she had to take out as a condition to getting a $250,000 loan. She had no dependents and no other debt that needed to be covered by life insurance. Milestone Direct asked her to email copies of her policies to them so they could review them. Milestone Direct and Leading Hand Abbie agreed to a fee of $150 to undertake this work.

Advice

Leading Hand Abbie was paying $210 per month for the first insurance policy and $85 per month for the second policy. This amounted to $3,540 per annum. Sadly, she did not need those two insurance policies at all as she was covered for $300,000 death cover under the NZDF MIBP and this cover was totally free to her. Milestone Direct recommended she cancel her two civilian policies and just retain her free MIBP. They also advised that if she was to leave NZDF, she should consider taking out Tier 2 MIBP as it is significantly cheaper than what is available in normal retail schemes.

Value added

Leading Hand Abbie was better off:

  • Saving $3,500 per year
  • She decided to invest that into the NZDF FlexiSaver Scheme and use the growth fund. This enabled her to save for the medium term and earn a much better earning rate over time than if she left the money in the bank.
  • She joined the New Zealand Defence Force KiwiSaver Scheme and was able to access CDF member retention payments of $1,000 before tax after 1, 4 and 7 years (assuming she remained in NZDF).

Buying a house within five years of joining NZDF

Situation

Chairman of Milestone Direct David Greenslade has been conducting the ‘Get 100’ programme with a number of young NZDF servicemen and women. This involves putting in place a structured programme where they accumulate $100,000 within 5 years of joining NZDF and then use that to buy their first home.

Advice

Milestone Direct has a structured plan to help service personnel:

  • Save money for the first five years using the New Zealand Defence Force KiwiSaver Scheme and the NZDF FlexiSaver Scheme.
  • Negotiate the best mortgage and structure it to suit your specific needs.
  • Assist you to access your full entitlement to the HomeStart Grant from Housing New Zealand.

Value added

Ability to buy your first home by age 23 (assuming you joined at age 18 years), plus obtain access to CDF member retention payments.

Making your money work harder for you

Situation

A senior officer (let’s call him Murray) rang the Milestone Direct team to ask what he should do with his SSRSS. As part of the questioning process, the team identified that Murray had the following:

  • $295,000 in SSRSS, and over the past five years it had an average earning rate of 9.68% after fees and before tax as at end of June 2015. He was also contributing $1,200 per fortnight.
  • $180,000 in term deposits earning 4% before tax pa. Murray indicated he is saving this money for the long term.
  • A $420,000 rental property that was debt free, had not increased in value for the past four years and was generating after all expenses 4.5% before tax.
  • A life insurance policy with a commercial insurance company costing $3,600 pa.
  • He also received $300,000 MIBP free of charge.

Advice

The Milestone team and Murray agreed that he needed a comprehensive financial plan and they agreed to an advice fee of $450. Murray was happy to liaise remotely with the Milestone Direct team as his situation was not regarded as being complex.

The team recommended the following:

  • Undertake a comprehensive investment risk questionnaire. This identified that Murray was comfortable to take a growth risk profile with his money rather than the more conservative approach he had been taking up until now.
  • Start a New Zealand Defence Force KiwiSaver Scheme fund and contribute 3% to this. He is likely to remain in the NZDF for the next 4 years so will receive the CDF member retention payment after year 1 of $1,000 before tax and then a further $1,000 before tax after 4 years. The recommended fund is the high growth fund as Murray has over 10 years before he will access his KiwiSaver.
  • Cease contributing to the SSRSS but leave the accumulated balance in place and move the funds to the growth fund until he retires from NZDF. Over the past 5 years, the NZDF growth fund has earned 10.9% after fees and before tax. There is no guarantee that past returns will be what is achieved in the future but the difference in the returns has been an average of $3,540 pa which equates to $17,700 over the past five years.
  • Move the $180,000 currently in term deposits to the NZDF FlexiSaver Scheme growth fund. This would increase his potential return from 4% before tax to the longer term projected return of 7% after fees and before tax return from the NZDF FlexiSaver Scheme growth fund. This is a potential increase in return of $5,400 before tax per annum.
  • Retain the existing rental property but sell it into a family trust that Murray should establish and then purchase a second rental property but one in a high capital gain area. Milestone helped Murray identify a rental property in a growth area that has consistently achieved growth of 6% pa. Based on purchasing a rental property costing $600,000, this could potentially give a capital gain of $36,000 pa.
  • Murray should take MIBP tier 2 life insurance to cover the additional mortgage level and once this was in place, then he could cancel the existing life cover. The Tier 2 top up cover only cost $2,100 pa – a saving of $1,500 pa.

Value added

For Murray, the saving was huge:

  • CDF member retention payments (2 x $1,000 before tax payments) $1,300 after tax.
  • SSRSS improved return of $3,540 pa.
  • Improved return by moving from term deposit to FlexiSaver growth fund $5,400 pa.
  • Estimated capital gain from two rental properties $36,000 pa.
  • Saving on insurance $1,500 pa.
  • Total value of advice $47,740 pa.