DIY investors warned: risks are on you

Wednesday, 9 July 2025

When it comes to investing, there is no return without risk.

DIY investors who make their own decisions on risky investments have been warned by financial complaints schemes that they are fully responsible for the risks they assume.

There are four authorised complaints schemes that can investigate complaints from members of the public who feel they have been wronged, and all registered financial service providers must join one of them.

The schemes are the Banking Ombudsman, the Insurance and Financial Services Ombudsman, the Financial Dispute Resolution Service (FDRS), and Financial Services Complaints Limited (FSCL).

Periodic falls in sharemarkets and sudden changes in personal circumstances can reveal DIY investors had taken on more risk than they understood, including “liquidity” risk, which is the risk of not being able to sell an investment quickly and easily.

But case notes , which are anonymised and do not contain the names of complainants or companies, indicate in many cases, DIY investors will find no-one to blame but themselves.

In one case handled by the Financial Services Dispute Resolution scheme, a couple wanted compensation after an investment they made went badly wrong.

They were searching for a place to invest their retirement savings, a case note shows.

They wanted medium to high returns with low costs and low risk, and which allowed quick access to their money if it was needed for unforeseen expenses.

But instead of seeking out a financial adviser to get expert advice, they attended a seminar hosted by a nationwide investment firm and decided to put their savings into its managed fund.

They were given a prospectus for the fund and invited to see a financial adviser, but, the case note says: “They declined the offer and said that they did not have time to read the prospectus as they were heading overseas and wanted to complete the transaction before they left.”

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The following year, one of them suffered a heart attack while overseas and required urgent treatment in hospital.

They had not taken out travel insurance, which would have paid for the treatment.

They decided to take money out of the fund, but learned that in order to do so, they would have to sell their units to another investors on what is known as a “secondary” market.

This lacked liquidity, and there were no current buyers looking to buy units. The fund manager told them they would need to wait until there was a buyer.

They were able to sell their shares, but only after several months. They made a modest gain on the sale.

The couple complained to FDRS claiming the fund had misrepresented the nature of the investment they had entered into.

Financial advice helps people build a diversified portfolio of investments, and to understand the risks they are taking with their money.

Their complaint was turned down. The prospectus, which the couple had not read, made it clear the fund was suitable for long-term investors.

“There was also evidence that the [complainants] had not taken reasonable steps to protect their own interests such as reading the prospectus and obtaining independent advice,” FDRS found.

“Investors are required to take reasonable steps to ensure they fully understand the risks and benefits of any investment they are considering, and this will usually require that they undertake their own independent research and seek advice,” FDRS said.

A second case from the Financial Services Complaints Limited scheme (FSCL) involved a DIY investor who saw an online advertisement for a fund manager.

She spoke with an adviser at the fund manager about investing $300,000.

Global events far out of the control of fund managers, such as the economic policy of major countries like the United States, can have a big impact on world sharemarkets.

The adviser offered to go through an advice process to determine the best investment strategy, but the woman declined. She said she had money invested in various places and knew the risks.

“She told the adviser she was simply looking for a company who could get the highest return possible,” FSCl found.

She was warned about the risk of putting her money in one place, rather than setting up a diversified investment plan.

But after hearing about the impressive past returns for the funds, she chose two funds she wanted to invest in.

“The adviser told [the woman] she should not base her investment decisions solely on past returns,” FSCL said in its case note, but the woman said she was aware of the risks from her other investments and understood the returns were not guaranteed.

It would be great to live in a world where investments only went up in value, but that is not the case.

Instead of investing $300,000, the woman instead invested $950,000 split equally between two funds. Both were rated six on a one to seven risk scale, with seven carrying the highest level of risk.

The funds lost money in the first three months of her investment.

The woman contacted the fund manager, saying she did not invest her money to lose it, and asked why the funds were dropping badly.

The adviser said the funds were expected to fluctuate in the short term but deliver returns over the longer term. The adviser offered the woman personalised advice again, but she declined.

After nine months, the woman’s investment had decreased from $950,000 to $705,000, prompting her to complaint to FSCL, seeking compensation for her losses.

FSCL found the woman had declined advice, and that the risk warnings presented to her, including that the fund was suitable for investors with long time-frames of seven to 10 years, were clear.

“Consumers should think very carefully before declining personalised investment advice,” FSCL said.

In declining to get advice, the woman missed the opportunity to have her attitude to risk assessed, it said.

“This case also shows the dangers of not properly considering the suggested minimum investment time-frames, and of relying on past performance when making decisions,” FSCL said.

The Banking Ombudsman had a similar complaint over the performance of a KiwiSaver fund from a man who had just retired, and told his bank he wanted a low risk investment because he intended to buy a home shortly.

The bank advised him to go into its lowest-risk fund, which he did.

The bank sent him quarterly updates for the fund, which he did not read. In the middle of the following year, the man checked on his fund, finding he’d suffered a significant loss. He withdrew his remaining money, putting it all in a term deposit. He complained to the bank that it should never have recommended the fund to him and should have contacted him directly about the scheme’s losses.

The ombudsman investigated and decided the bank’s recommendation that he invest in the low-risk KiwiSaver fund was appropriate, and was a reasonable fit for the purposes the man had disclosed to the bank.

The term low-risk did not mean risk-free, the ombudsman said.