[UPDATED] Advisers have been “totally out-manoeuvred” by banks when it comes to KiwiSaver, an investment analyst says.
Collin Nefdt, formerly of Morningstar and now operating research organisation NZ Trends, said the bank dominance in the KiwiSaver market had pushed financial advisers to the side.
His latest research, for the third quarter of 2015, showed the drop in market share of schemes distributed by financial advisers.
Including AXA pre-merger, AMP’s market share dropped from 20% in 2008 to 12.9% in 2015.
ANZ’s OneAnswer Scheme dropped from near 10% of the market to 5% in 2015.
Grosvenor was the only one holding its own, increasing from about 2% in 2008, including Fidelity Life, which it later acquired, to 3% in 2015.
That is despite OneAnswer leading the growth and balanced categories in per-annum returns over the past seven years, with 9.6% and 9.1% growth per year, respectively, ahead of medians of 7.3% and 7.6%.
Nefdt said: “It’s eye-opening how advisers have just been crushed in this market.”
AMP did not want to comment.
Over the life of KiwiSaver, much of the growth has been with the big banks. Nefdt’s data showed ASB had the largest chunk, at 17.8% in 2015, up from 15% in 2008.
ANZ’s bank scheme alone had 15.7%, Westpac 11.4%, Kiwibank 7.6% and late arrival BNZ has just under 2%. All increased their share of the market over the seven-year period.
Nefdt said: “Each bank is essentially an adviser or distribution business and it is a lot easier to get to a bank than for an adviser to get to a potential member or a potential member to get to an adviser. The banks made sure that each customer who came through the door was asked the ‘KiwiSaver question’ – Westpac has been particularly good at this from inception. From day one of KiwiSaver I saw advisers grappling with KiwiSaver and many were not prepared to do the hard yards at the expense of easier commission-driven insurance sales.”
Schemes provided by consulting firms have not made much impact – Superlife had 1.4% in March this year, Aon 1.1% and Mercer 4.4%.
Nefdt said advisers seemed unsure of how to approach the KiwiSaver market. “It is fair to say the adviser community did not crack the KiwiSaver puzzle. When some advisers focussed on KiwiSaver – where all clients started with zero balances – their remuneration suffered and they were forced to refocus on commission business. The Asteron scheme did all the hard work and then closed with a market share of 0.6%. A 0.6% market share is gold in today’s market.”
He said: “This short-term view was unfortunate because in the long-run KiwiSaver balances will be many Kiwi’s largest asset. Huljich was the one provider to crack the adviser-distribution model and the saga is a sad one for me as I appreciated how they got out there’ and created alternative adviser channels and aggressively competed with the big guys.”
Nefdt said preferred provider schemes were an adviser opportunity that had been missed. ” I feel the authorities did not articulate the opportunity and provide guidelines on how preferred providers should be serviced. Thus, many advisers lost sight of the opportunity. Clearly it is more convenient and time-effective for advisers to deal with employee-groups than individual one-on-ones. What has happened is that many advisers are attached to preferred providers but not servicing them or waiting for it to be worth their while. I strongly believe that the FMA must ask every adviser attached to a preferred to show how they are servicing the arrangement over the year. In turn preferred provider members have been very susceptible to approaches from other providers as they were not being serviced.”
Nefdt said the impact of market turbulence had been felt in the September quarter for the first time in some years.
“The third quarter of 2015 resulted in a pull-back in equity markets while currency is playing a big role in the short-term returns on international assets for New Zealand investors. For the first time in over three years the majority of KiwiSaver funds reported negative quarterly returns.”
He said over the past three-year period, growth and balanced funds had comfortably outperformed more defensive multi-sector funds.
But in the most recent three-months, the conservatively-invested default funds were the only positive performers in Nefdt’s survey, returning 0.01% in the quarter.
The highest return of the quarter was 6.1%, and the lowest was a drop of 10.8%. The median return in the quarter was a drop of 0.97%.
Nefdt said: “One of the major investment trends over the past 20 years has been the steadily increasing exposure to ‘alternative assets’ in pension and superannuation portfolios.”
In KiwiSaver, only AMP, Aon, Koinonia – the Christian fund, SBS Lifestages, Mercer, NZ Funds and Westpac, have exposure to alternative assets. Nikko has the most with 19.9% in hedge funds, followed by Mercer’s balanced fund, with 10.7% in hedge funds, commodities, private equity and infrastructure.
On a rolling three-year return basis, those funds with alternative assets have lagged balanced funds without them, in terms of returns gross of tax and net of fees. Nefdt said they tended to be more expensive.