KiwiSavers shun financial advice

KiwiSaver investors are more likely to use family and friends than financial advisers as their main source of advice, a new study has found.

The research, written by Dr Claire Matthews of Massey University, also found male KiwiSaver members appear to be more tolerant of risk than female investors in the scheme.

The results are from a nationwide survey of 1000 New Zealanders aged 18-65, conducted by market research firm UMR Research.

It found that, of those in KiwiSaver, only 4% said they had joined because they had been recommended to do so by a financial adviser.

Financial advisers were the main source of information for just under 20% of KiwiSaver members, while nearly 12% of those who switched providers said they did so because a financial adviser recommended it.

“The main source of information on financial matters was reported to be family and friends. Financial advisers, banks and the internet were reported to all be used in approximately equal proportions,” the report said.

“The source of information differed significantly by age. Use of financial advisers and books etc increases with age, while reliance on family and/or friends and on the internet decreases with age.”

Another finding was that many members chose their bank’s KiwiSaver scheme in order to keep all their financial affairs in one place.

“It appears the choice of provider is being driven by convenience, with a lack of proper analysis of the options available, and identification of the best provider and fund to meet the member’s needs,” the report said.

It concluded: “There appears to be a preference to take the advice of family and friends rather than of financial advisers.

“Only a few New Zealanders have joined KiwiSaver or made changes to their KiwiSaver account on the basis of a recommendation from a financial adviser.  Books and magazines , and the internet are relied on almost as much as financial advisers.”

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Fees only one part of default fund debate

The fees issue is just one of many around how to get the best out of KiwiSaver default funds, according to Savings Working Group member Paul Mersi.

While the current default fund system isn’t up for review until 2014, the Green Party’s election policy of creating a “public option” default fund managed by the Guardians of the New Zealand Superannuation fund has put the issue into the spotlight.

The Savings Working Group, which was set up by the government to look at policy around savings, mooted a similar policy but didn’t make a recommendation either way.

“We had a view that it was worth looking at but we didn’t have the time or resources to fully investigate that,” Mersi said.

“The government’s got this product where there are a lot of people coming in who don’t care who the provider is.  Our perspective was that one fund, five to six times bigger might be able to be of sufficient scale to paddle in bigger pools and deliver low fees.

“The level of fees is only one bit of it – the other bit is to make sure that they have an asset mix that is appropriate to their circumstances.  There needs to be a more structured approach to tailoring people’s assets to people’s age.”

Mersi said it was proving harder than expected to shift people out of default funds and the managers of the funds weren’t finding them as lucrative in that regard as they’d hoped.

He said the default fund issue would need sorting regardless of which party won the election, and it would be particularly important if KiwiSaver became compulsory as many thousands more would end up in default funds.

“If you’re going to be sucking more people into the machine there’s actually an increased responsibility to make sure the machine you’re sucking them into is the best it can be.”

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