KiwiSaver

Bank KiwiSaver providers are worried that proposed changes to annual statement requirements could lead to members chasing the lowest-fee providers.

The Ministry of Business, Innovation and Employment sought submissions on potential changes to the annual statement rules for KiwiSaver, including requirements that providers show members what income their accounts are on track to deliver in retirement, the amount of fees they have paid each year in dollar terms, and a prompter to seek help on getting more from KiwiSaver.

The Bankers Association said it would be possible by next year to produce statements showing members’ current balance, the total amount the account grew by over the year, transactions through the year and an encouragement for investors to seek help on increasing the money they had available at retirement.

But the other changes proposed would take longer.

It said providers would have a number of issues to address if they were required to calculate each member’s projected retirement balance and income.

“This is because a number of detailed and technical assumptions need to be worked through to achieve accuracy, consistency and comparability of this information for consumers. Without guidance on this issue, or sufficient time to test and implement the Retirement Income calculation, these projections are likely to be misleading and confusing.”

The submission said this requirement could be brought in, in 2018.

NZBA said two of the six bank KiwiSaver providers who are its members are in a position to disclose fees in their statements, and already do.

But it said for others, it would be difficult.

“The calculation of these fees is complex, as percentage-based fund charges are calculated at fund rather than investor level, and it is therefore not a case of summing transactions per investor. Calculation logic also needs to be applied to each investor taking into account considerable complexities such as multiple funds held by each investor, potential switching between funds and total fees changing during the period.

“Regulations will need to be developed so that all of these complexities are taken into account and all providers are calculating total fees paid on the same basis, which importantly ensures customers are receiving consistent information that is comparable across industry.”

But the NZBA said it did not support highlighting fees in the way MBIE suggested, with a “total fees” circle on annual statements.

“In NZBA’s view this places a disproportionate emphasis on fees over performance. Whilst fees are an important factor in retirement outcomes, ultimately net performance is more important.

“Fees are one element of the overall retirement investment and in many instances reflect active/passive fund management. In an actively managed portfolio, higher fees are appropriate, as they reflect the work undertaken by the provider. All fees should be considered in light of the total return, so that the member can form their own view about the fee in light of the service they have received and returns their fund has made.”

NZBA said if fees were given such weight, it could drive a culture where KiwiSaver members chased low fees at the expense of optimal savings growth.

New Zealanders say there is not enough information available to help them choose responsibly invested KiwiSaver funds – but very few seek out an adviser to help them.

Those are some of the findings of a new survey of more than 1000 New Zealanders.

It was launched yesterday at the Responsible Investment Association Australasia’s conference in Auckland.

The survey found that 95% of respondents said it was of some importance that KiwiSaver funds considered environmental, social, governance and/or ethical factors when making their investments.

But only 59% said they would rate that importance at more than six out of ten.

One-third said the decisions they made on where to invest were weighted 50/50 between financial considerations and their personal values. Issues related to people, animals and corruption rated more highly in the things people expected their investments to avoid than environmental factors.

The biggest concerns were companies investing in whaling or nuclear power.

More than half of the respondents said they would be more likely to invest in a KiwiSaver fund certified as responsible but only 42% were willing to pay any more to do so.

More than half of all respondents agreed that they did not have enough time to look at all the options and compare them, or that there was not enough independent information available.

But 44% made their financial decisions on the basis of their own personal research,which ranked just ahead of turning to their KiwiSaver provider, bank and then friends and family.

Only 14% said they would seek out the help of a financial planner or adviser – the least popular option.

Simon O’Grady, Kiwi Wealth chief investment officer, said investors expected their wealth management companies to develop pragmatic solutions that reflected their personal values but also performed financially.

“New Zealanders want to be responsible with their investments but at the same time want to achieve strong financial returns. Well over half of the sample say financial performance is more important to them in their investments than personal values. We think this is important to take into account when developing our investment policies.

“The survey shows how varied people’s personal values are when it comes to investment. Kiwis have also demonstrated a strong preference for fund managers to be active shareholders, positively influencing company performance through active engagement rather than just divesting.

“This survey raises many important issues for the New Zealand wealth management industry, and it’s a real challenge to strike the right balance on these issues while still meeting our fiduciary responsibilities.”

Efforts are under way at the Financial Markets Authority to help address concerns from KiwiSaver providers that are believed to be limiting the advice members receive.

It said the intention of its new draft guidance on KiwiSaver advice, which is out for consultation today, was to encourage advisers and financial firms to help New Zealanders make good decisions about KiwiSaver.

A review last year found only three in 1000 sales or transfers happened with personal advice.

There was also little management reporting available on how providers were helping their customers in other ways, in the absence of personalised advice.

Providers told the FMA that one of the obstacles to giving KiwiSaver customers advice was the guidance FMA had issued in 2012, which they believed to be restrictive.

Liam Mason, the FMA’s director of regulation, said: “We have revised our previous guidance because we want advisers and firms offering KiwiSaver to be more confident that they can have conversations and offer advice within the rules. We are paying special attention to explaining what constitutes class advice because much of what customers want and need to know about KiwiSaver is class advice.”

The guidance notes that customers often want simple, focused advice. “They may not want to pay for advice and may not want to share their personal information. In those situations, there are four main pieces of information and advice that will be useful for every customer, whether they are considering joining KiwiSaver, switching between funds within one KiwiSaver scheme, or transferring between schemes.”

Those pieces of advice are that people should be in KiwiSaver, should chose a contribution rate that suited them and at least gave them the member tax credit each year, should identify the right kind of investment fund and get the tax rate right.

“Our previous approach emphasised that personalised advice should be given only by those advisers who were eligible by law to give it. We have received feedback that that our approach resulted in some people not getting the help they needed, as firms saw it as risky to provide advice.

“We are replacing our earlier guidance to try to change this situation, and to encourage advisers and financial firms to help people make good decisions about KiwiSaver.  This guidance updates and clarifies our view of what the different types of advice are, so advisers can be more confident they are within the rules. We pay special attention to explaining class advice, because much of what customers want and need to know about KiwiSaver is class advice.

“While it remains true that many would likely benefit from detailed personalised advice, the more pressing need is for them to have started getting the help they need to make informed decisions about KiwiSaver.”

The guidance also covers the use of incentives to encourage KiwiSaver members to transfer from one provider to another. While the FMA’s overall view is that incentives can be provided, they should not be so attractive, nor offered in such a way that distracts a customer from making a good decision about KiwiSaver.

The guidance also says, for transfers more generally, providers should encourage customers to weigh up the pros and cons of transferring from their existing provider, including giving them information about comparison tools.

It gave examples of information that is not advice, such as explaining what KiwiSaver is, the features of the scheme, and what members would have to do.

Class advice could include questions to establish someone’s age, risk tolerance and savings goals. Advisers could cover things such as “why this KiwiSaver scheme”, switching funds and transferring between providers within class advice.

Personalised advice covers situations where the client would reasonably expect the financial adviser to take into account their particular financial situation or goals.

“Firms have told us their concern that as they cannot control customer perceptions, they cannot be certain whether class advice has moved into being personalised advice. Similarly, advisers have told us that they are particularly concerned when customers volunteer information about their personal financial situation and goals.”

The FMA said there were steps that could be taken to manage customer expectations, including telling them that class advice is useful for people generally within the class identified and asking whether they thought that was fair, and offering to refer them to an adviser who could give personalised advice if necessary.

“We have received feedback that our earlier guidance caused concern that if a customer provides any type of personal information, any advice given would not be class advice. However, our view is that advice is only personalised when it takes into account a person’s financial situation and goals.”

The FMA acknowledges in the guidance that the Government has signalled significant changes to the Financial Advisers Act 2008 (FAA), which will affect the rules for advice on financial services and products including KiwiSaver.

“When the new legislation comes into effect, this guidance will be reviewed and possibly replaced. In the meantime, this guidance recognises there is an opportunity now to remove an identified barrier to New Zealanders getting the help they need to make good decisions about KiwiSaver.”

A solid quarter has seen KiwiSaver investments shake off the impact of Brexit-induced market turmoil.

Morningstar has released its latest KiwiSaver report, which shows all options returned positive results over the September quarter.

After market wobbles earlier in the year dented their fortunes, growth-oriented funds returned to outperforming their more conservative counterparts.

Morningstar said this was a return to normal expectations of risk/return profiles.

Quarterly returns ranged on average from 4.32% for aggressive multi-sector vehicles through to 1.61% for conservative funds. Over the year to 30 September, average returns ranged from 10.27% (growth) to 6.66% (conservative).

“Investment markets rose in the third quarter, as the impact of the Brexit vote in June wore off,” Morningstar Australasia director of manager research Tim Murphy said. “The Kiwi sharemarket had a very strong July, and finished the quarter with a 6.7% return. This healthy market performance translated into positive quarterly results from KiwiSaver funds, particularly benefitting options with higher allocations to growth assets.”

The Fisher TWO KiwiSaver Cash Enhanced was the strongest performer in the multi-sector conservative category (2.03%) over the September quarter, and Aon Lifepoints Moderate (2.88%) was on top in the multi-sector moderate category.

Aon Lifepoints Balanced took pole position among multi-sector balanced funds (3.67%). BNZ KiwiSaver Growth was the best-performing growth fund in the September quarter (4.56%), while Booster KiwiSaver Geared Growth took the top spot among multi-sector aggressive funds (5.65%).

In some cases, the provider that savers chose could make as much difference as the type of fund they were in.

Some of the conservative funds have been outperforming their riskier peers.

Aon Russell’s Lifepoints conservative fund has returned 8.8% per year over the past five years, better than AMP and Booster’s balanced schemes.

Over one year, it returned 8.6%, which also put it ahead of Kiwi Wealth’s balanced scheme, OneAnswer’s balanced scheme and Booster’s AC growth scheme.

Over the five years to September 30, ANZ’s OneAnswer KiwiSaver Growth has produced the strongest performance among the growth multi-sector funds, returning 13.9 per cent per year.

FANZ Lifestages KiwiSaver Income had a tough quarter. The fund’s exposure to growth assets consists of property and infrastructure. With no exposure to equities, domestic or international and a heavy weighting to New Zealand and global fixed interest, the fund struggled against peers and the category index.

It returned 5.1% over the year, well down on the 6.7% average for the conservative group