Advisers need to get New Zealanders off “autopilot” when it comes to retirement savings, one commentator says.
KPMG has released its second Funds Management Industry Update, which covers the strengths and weaknesses of the country’s funds management industry.
John Kensington, KPMG’s Head of Financial Services, said the industry needed to adapt to the way customers wanted to deal with it.
“Customers want to interact digitally, which is driving the continuous need to make everything one click away – a trend that we are now seeing in the funds management industry, specifically KiwiSaver,” he said.
Kensington said New Zealanders were becoming more engaged with KiwiSaver but were still not as financially literate as they should be. “If we rated New Zealanders two or three out of 10 last time, it might be 2.1 or 3.1 now,” he said. “It’s not a huge improvement.”
Many were on autopilot for KiwiSaver, with the money coming out of their salaries before they gave it any thought, he said. That could be a blessing in a volatile market but would mean savers could end up with poorer returns over the long run than those who took an active interest.
But Kensington said New Zealanders were embarrassed about a lack of understanding of financial concepts and often did not ask for advice when they needed it.
He said there was a large amount of money invested through KiwiSaver that had had no advice at all related to it. The number of people still invested in default funds showed the need for better help, he said. “I would hate to see financial advisers squeezed out of the market.”
Those who were invested too conservatively could have a case to argue that their providers were remiss in not guiding them on to a better track, he said. “They might have a case to say ‘you’ve earnt all these fees from me and you never told me I needed to change’.”
The report identified roboadvice as a likely future disruption for the industry. Kensington said it could be useful for people with smaller amounts to invest.
“At the moment they are not getting advice – roboadvice might give them that but will they understand it, and listen to it?”
The paper also included an analysis of the “4% rule”, which assumes that is a safe rate of capital withdrawal for retirees.
Kensington said that rule would likely no longer apply in the current low interest rate environment, once fees and other investment costs were included. The report said safe withdrawal rates needed to start at 2.5%, not 4%. “Most people can’t afford to live on 4%. When you’re taking out less you need to have quite a pool of money,” Kensington said.