Face Value: Perpetual Guardian's Andrew Barnes on the perils of false optimism

(By Rob Stock, Sunday Star Times, 14/02/2016)

Andrew Barnes, managing director of the country's largest trustee company Perpetual Guardian, gets to know a lot about how Kiwis manage their money, their aspirations, and their mistakes. Among the biggest clangers people make with money, he believes, are to believe they are better off than they really are, and to blind themselves to the amount of money they are spending, He also thinks Kiwi savers are paying too much for their investments, and were he made prime minister for a day, he'd do something about it.

How financially savvy are you?

I am not a mathematician or an accountant, but I do have a sound grasp of numbers. I can look at a financial or business proposition and assess whether it will work or not. A lot of my savviness comes down to intuition and the fact that I approach problems in unconventional ways rather than relying on conventional wisdom. Coming from an artistic background means I tend to see patterns in numbers that will tell me whether something is good, bad or indifferent as a prospective purchase or investment.

How did you pick up your savvy money skills?

I genuinely do not know. I do know my approach to business is different to most of my peers, which I put down to my upbringing being more in the arts than in business or maths or science. There are two artists and an architect in my family, and though my grandfather was a businessman, he died long before I was born. After the Navy, I spent my early career in banking and finance, and I believed everyone in the industry was smarter than me. Ending up as an executive director and head of credit at Macquarie Bank suggests I was a brilliant technical analyst, when the truth is technical skills only get you part of the way. I just know intuitively what is viable when I see it.

How did your upbringing shape your attitude to money?

My upbringing in north-west England was unremarkable. My mother's father was unemployed for most of her childhood, and my paternal grandfather died when my father was 15. My parents were understandably focused on job security and avoidance of risk, and they instilled these lessons in me, giving me a pretty cautious approach to money and investing. My entrepreneurial instincts have been very much self-generated, and I have spent most of my business career fighting against my first reaction, which is always to be risk-averse.

If a child asked you the best way to make money, what would you say?

Do what you are good at and do what you like, because when you look at the global business environment, some of today's biggest companies did not exist even ten years ago – and often the industries they operate in did not exist either. How can today's children plan for the future when they cannot know what to expect? Technological unemployment is a common prediction, with the Bank of England's chief economist warning that fifteen million UK jobs could be taken over by robots in the next couple of decades. In that scenario, the best thing for any child is to pursue their aptitudes and interests.

What are the worst mistakes you see in other people's money lives?

A fundamental mistake is the failure to understand and appreciate risk. People too often fall victim to a herd mentality, and forget that if something looks too good to be true, it usually is (and that 'get rich quick' doesn't get you rich). Often people chase a high return and forget that the higher the return, the greater the risk. The rule I think everyone should follow is to plan for the future while avoiding short-term or knee-jerk reactions to both positive and negative events. The average consumer buys high and sells low – they jump on the bandwagon too late and panic when the market goes down.

What lies do you think people tell themselves about money?

Truly, the biggest lie is false optimism. People generally think they are better off than they really are. They spend more than they think they do, and save less. For instance, which price do you use as a gauge when you are looking at your share portfolio – the bid price or the offer? When you are assessing the value of your home, do you refer to the highest recent sale price in your immediate area or the lowest? The biggest problem resulting from this self-deception is that people are living much longer than ever before, and if they want to keep living their preferred lifestyle into their 80s or 90s, they will need to save a lot more for retirement than they think.

Where should generosity fit into a lifetime money plan?

I think everybody who lives in this country has won the lottery of life, because we are in a safe, beautiful country with a good education system, a strong(ish) economy and stable, democratic government. Think about your life: at some point in time, someone has helped you. Perhaps many people have helped you. It is important to acknowledge that by in turn helping another. It is an obligation, in my view. According to Giving New Zealand 2014, New Zealanders are the third most generous people in the world, and while some of that generosity is financial and measurable, such as donations and bequests, there are thousands of other little gifts of help and kindness happening all the time.

What has My Bucket List (an online life-planning tool for Millennials Perpetual Guardian bought last year) taught you about people's aspirations?

I think everybody wants to ensure their loved ones live in a safe and prosperous environment. Wherever you are from, that is what people want, and I do not think it changes whether you are rich or poor. It is nice to travel and have adventures and so on, but at the crux of it all is the wellbeing of the people we love.

If you were prime minister/dictator for a day, and could change one thing to improve the money lives of Kiwis (or a specific subset of them) what would it be?

I would make KiwiSaver compulsory, and I would make it compulsory to have a will attached to your KiwiSaver account. Every New Zealander would therefore be saving for their retirement and have a say where their money goes upon their death. Additionally, I would legislate to introduce more low-cost savings products that can be sold more cheaply. Often fees have a disproportionate impact on long-term savings. Think about it: if you could save 1 per cent per annum over 30 years, what would that mean for the size of your pension pot?