‘First home further from reach’

A place to call your own

Iosefa and Teuila were looking to buy a home in South Auckland. Iosefa worked fulltime and Teuila worked part-time and was the primary carer for their three young children.

Iosefa and Teuila had some savings but had to save more for a house deposit. They heard about a financial adviser who had developed a savings plan to help people looking to buy their first home, and decided to contact him. The financial adviser explained that his plan allowed for Iosefa and Teuila to make regular deposits of as little as $5 a week. Once their savings reached enough to meet the 10% deposit requirements for regular bank lending, the financial adviser would then help to secure finance with a bank.   

The financial adviser said he had helped hundreds of people just like Iosefa and Teuila. He gave them his disclosure statement and said that the fees for his service would be paid by the bank when the finance was arranged. However, he said that if Iosefa and Teuila did not use his services to buy a house, or if they made an early withdrawal for another purpose, then they would have to pay a $4,995 fee.

Iosefa and Teuila transferred $500 in savings into the financial adviser’s account and started to make weekly deposits of $15. They were excited they were on their way to realising their dream of owning their own home.

After two years in the plan, a friend reviewed Iosefa and Teuila’s budget, income and outgoings. The friend said it was very unlikely they would have a sufficient deposit to be eligible for regular bank lending within the next 10 years. The friend also asked how much interest they were earning on their deposit savings, but Iosefa and Teuila didn’t know.

Iosefa and Teuila contacted their financial adviser and were told that their savings in the plan did not attract any interest. Iosefa and Teuila talked with their friend again and agreed that if they had put their savings in a savings account with their bank, the savings would accrue interest and grow faster.

Iosefa and Teuila decided to cancel their agreement and take their savings out of the financial adviser’s plan. The financial adviser accepted their cancellation but did not release their savings of $2000. The financial adviser advised he had credited their savings to his $4995 fee and he sent Iosefa and Teuila an invoice for $2,995.

Iosefa and Teuila’s view

Iosefa and Teuila were shocked. They felt angry that they had missed out on interest and very disappointed that they had lost their savings and were now in debt.

Iosefa and Teuila could not believe that their financial adviser, who they trusted, would do this to them. They understood their savings were being held on trust in their best interest. After the financial adviser refused to change his mind about the debt outstanding, Iosefa and Teuila’s friend suggested they complain to FSCL.


The financial adviser disputed that FSCL had jurisdiction to investigate a complaint and said that it was simply a debt collection issue. We reviewed the agreement and considered that the complaint was about whether the fee had been fairly disclosed, calculated and applied. This could be investigated under our terms of reference.

We considered that the financial adviser’s agreement to hold money securely for Iosefa and Teuila was providing a financial service. We found that money was not being held on trust, which meant that financial adviser did not owe Iosefa and Teuila any fiduciary duties. We held that the agreement was a contract for services, with an option for deferred payment.

We confirmed that Iosefa and Teuila were not earning any interest on their deposit in the plan.

We also reviewed Iosefa’s financial position. Iosefa and Teuila had four debts currently listed with credit agencies and other loans and hire-purchases totalling $60,000.

Iosefa and Teuila’s $15 a week saving in the plan was the most they could afford on their modest income and, at their current rate of contribution, with no interest accruing, it would take over 100 years to raise the 10% deposit required to buy an average house in Auckland.

We felt that the financial adviser’s fee was very high for the service he had provided, however, because the agreement was an agreement for services, the credit contracts legislation did not apply. We also could not find there had been any misrepresentation as the financial adviser’s fee had been reasonably disclosed to Iosefa and Teuila.

We were however very concerned about whether the financial product was fit for purpose for Iosefa and Teuila. We discussed our concerns with the financial adviser.


We negotiated with the financial adviser a confidential settlement for Iosefa and Teuila which involved a partial return of their savings and the forgiveness of the outstanding debt.

Our insight

It is very important to understand the benefits and fees involved in any savings plan. Ask for disclosure statements and talk things over with someone you trust before signing any documents. Be very careful about saving in an account that does not pay any interest.

Remember that your bank or credit union can offer a separate savings account for you to make deposits specifically for any goal. A savings account may be able to earn you higher interest on your funds at competitive fees.