KiwiSaver

Total KiwiSaver membership rose 1.8% in March suggesting concerns about possible changes to incentives and an improving jobs market, according to default KiwiSaver provider Tower Investments.

“March saw a sharp lift in KiwiSaver sign-ups, with net total membership rising 1.8% for the month and closing on 1.7 million members,” said Tower Investments CEO Sam Stubbs.

He said opt-ins via employer were up 1% and automatic enrolments were up 2%, suggesting better employment conditions.

He also cited potential post-Budget changes to KiwiSaver as a driver for the increased membership.

“Another factor could be workers getting in on KiwiSaver before changes are made to the scheme as flagged by the Government for possible announcement in the upcoming Budget,” Stubbs said.

“People hesitating to join may have decided they should get in now just in case KiwiSaver is less generous to those who sign up later on.”

Stubbs said with the Government having flagging the May 19 Budget as being about savings and investments, changes to KiwiSaver incentives were possible.

“It’s possible – I don’t know if you’d call it probable – it’s certainly possible that they’ll be cutting benefits to some degree because those subsidies are quite expensive,” he said.

“Certainly it would seem that if the Government is calling this a savings and investments Budget then they clearly want the industry to grow and KiwiSaver to get even stronger and more viable. Maybe for that long term gain we might have to endure some short term pain in terms of the removal of subsidies or some subsidies.”

Stubbs said that as KiwiSaver membership had grown to include the majority of working New Zealanders, it was more important to focus on contributions rather than initial incentives.

“I think now the mechanisms for enrolling are so well entrenched that people are going to get signed up anyway, so I think the Government will – I hope – be more focused on the long term growth of the contributions in the scheme and making the existing members wealthier than focus solely on signing up new members.”

Stubbs said work could be done around tax credits – which he said are less understood by investors – and cautioned against the creation of a single default fund.

“The only thing we’d be hugely disappointed in is if they adopted the Savings Working Group’s idea of having a single low cost index fund, that would end up robbing a lot of New Zealanders of decent investment returns over the long term,” he said.

He said the current default providers had provided stable returns throughout the global financial crisis, and “I’d be surprised if the Government could run a single scheme at a lower cost that the private industry has been managing.”

 

Regulation for KiwiSaver schemes should place investors at the fore and not be led by product providers, and payments to advisers at the cost of investors should be disclosed, according to Morningstar.

In its submission to the Ministry of Economic Development (MED) Periodic Reporting Regulations for Retail KiwiSaver Schemes Discussion Paper Morningstar also said improved disclosure would encourage greater investment in managed funds.

“We believe that mandatory, periodic disclosure of comprehensive portfolio holdings would increase equity between managed fund investors and encourage greater engagement with retirement savings and pooled investment vehicles more generally,” the company said.

Morningstar also advocated full disclosure of any fees paid to financial advisers, however, “if the payment to advisers is being paid by the fund manager then the information is not so pertinent. Information about the sales practices of a scheme through an adviser channel would be interesting information, but it doesn’t help the end investor make a more informed decision.”

Morningstar also outlined its responses to  questions on a number of issues  raised by the MED paper.

It agreed that any costs deducted from a fund should be disclosed and that there should be a prescribed set of terms for each fee type.

On the issue of performance fees Morningstar agrees with the MED view that they should be disclosed, saying, “There is no rationale or justification for not disclosing performance fees,” it also advocates a wider disclosure regime.

“Simply disclosing the performance fee is not enough, though. Morningstar believes that the terms of the performance fee should be disclosed as well as the fee itself.”

The submission says fund managers should also disclose performance fee quantum, benchmark, hurdle, high watermark, reset period and crystallisation period.

Fuller disclosure of fees would create simplicity, uniformity and comparability and “show the investor the impact of the performance fee on their return, and provide at least a very good approximate basis for comparison.”

The submission also advocates mandatory full portfolio holdings disclosure, noting that despite fund management industry criticism, “Morningstar is yet to find a country where mandatory portfolio holdings disclosure has been harmful to capital market development.”

On wider regulation while Morningstar sees GIPS as the ‘gold standard’ for the calculation and presentation of performance figures, the company said it remains comfortable with the Investment Savings and Insurance Association’s approach.

“GIPS is by and large a strategy or asset class institutional approach to performance reporting not really appropriate to the New Zealand retail market.”

OnePath has seen off competition from Fisher Funds and Milford Asset Management to be named Morningstar KiwiSaver Fund Manager of the Year.

The OnePath general manager funds, David Boyle, said he was delighted with the win.

“It’s a fantastic moment in the sense that the OnePath brand has been recognised with this award, particularly given the criteria that Morningstar used, which was quite extensive, particularly from a customer experience perspective.”

The Morningstar Australasia co-head of fund research, Chris Douglas, said the award winners, “have all shown themselves to be outstanding stewards of their investors’ capital.”

Morningstar praised OnePath’s transparent KiwiSaver options, broad selection of fee choices and strong performances.

“Morningstar’s analysts consider OnePath the best all-round solution for New Zealander’s retirement savings needs,” the company said.

Boyle said the wider criteria used to assess the award and the fact that KiwiSaver is more of a mass-market product made their success especially pleasing.

He said that during the awards ceremony Douglas said Morningstar had, “extended the criteria to include not only the performance of the scheme, but the transparency of fees, the quality of regular updates, the education material, the website, the tools and content on that website to assist KiwiSaver members with information and transparency, [these] were key factors.”

While Boyle stressed the importance of the wider factors around the OnePath offering, he also acknowledged the importance of fund performance.

“We take performance as a given, we have to deliver a level of performance and it needs to be consistent and consistently good relative to peers and the market. That’s what we strive for as a funds management provider as well as a KiwiSaver provider,” he said.

March 2 will see either Fisher funds, OnePath or Milford Asset Management emerge triumphant from the Morningstar Fund Manager of the Year Awards having been crowned KiwiSaver Manager of the Year for 2010.

Good Returns spokes to all three providers to try and find out what makes them amongst the best three KiwiSaver managers in the country last year.

For Fisher Funds managing director Carmel Fisher, being nominated in the KiwiSaver category is especially pleasing.

“Their finalists for KiwiSaver are slightly different in that they focus a little bit on client service, communications, all round offering really,” she said.

Fisher believes the company’s approach to communicating with their clients is one of their key pluses.

“We’ve always believed that if you communicate well with investors about how you’re investing their money and why, then they become better investors over time because they understand the process and engage with it, and we’ve certainly done that with KiwiSaver. For a number of KiwiSaver members, their KiwiSaver accounts represent the first time they’ve ever invested, so there is an education process to be done and we take that seriously.”

She also said that fact that KiwiSaver is a long-term investment means the investor will go through numerous market cycles, adding to the importance of effective communication.

“For a lot of people their KiwiSaver account is locked up for a long period of time, so the more they can be educated and communicated with on the way through, even though they can’t access their money, at least they understand what its doing and why its behaving the way it does.”

“Then I think they will be more engaged with it and take more interest in it, which they should as its their retirement savings,” she said.

For Milford Asset Management managing director Anthony Quirk, communication is also an essential part of the company’s approach to KiwiSaver management.

“We’ve made a big commitment to have very good communication to our investors on our website and communicating with them directly so we’ve made quite a deliberate effort in that area,” he said.

“This means we’re very transparent in terms of what we report to clients on the performance, what’s done well, what hasn’t done well, we’re very open with them in lots of different areas which I think is appreciated, which I think Morningstar has recognised as well.”

He said they had received positive feedback from their KiwiSaver customers both in terms of their performance – which Quirk acknowledged as the “bottom line” – and on how they report.

“We do get people transferring from other providers who make good contrast with the information they get with us to what they received previously, so it’s something we’ve been very conscious is an important thing to do.”

“Investors not only want to know that their funds are managed well, they want to understand how they’re managed.”

For OnePath general manager, funds management, David Boyle, their nomination is a reflection of the company’s track record of investing in different market cycles over 25 years and the experience that comes from managing the country’s oldest and largest superannuation schemes.

“These are some of the reasons for our default KiwiSaver provider status where the strength and stability of the manager was paramount for meeting rigorous criteria, along with a demonstrated ability to process and administer the scheme at the highest standard.”

Boyle said over the last three-and-a-half years the company has focused on meeting the needs of more than one-in-five New Zealanders with a KiwiSaver scheme.

“We offer the widest range of investment choices including five multi-sector funds and the lifetimes option, delivering the best quality and services to our members,” he said.

“In general we have delivered above market performance in the numerous investment sectors we work in.”