KiwiSaver

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

Advisers are being urged to think about KiwiSaver advice as a way to capture clients for the future.

While KiwiSaver balances are growing, many advisers still regard the superannuation savings scheme as more trouble than it is worth.

Commissions range between about 0.15% and 0.25% of the client’s balance. The average balance is about $12,000.

But Richard James, chief executive of NZ Funds, said advisers could use KiwiSaver as a first step to a long-term relationship.

Advisers who worked with high income earners might find KiwiSaver was their only asset at present, but in the future that would change.

“I don’t think you should look at clients through a product lens but should look through a relationship lens,” he said.

“If you are a non-institutionally affiliated adviser it’s important to build a relationship with potential clients as early on in their wealth accumulation phase as you possibly can. It’s so much more difficult to build a relationship later on when they have already accumulated substantial wealth and have relationships in place. The banks will capture them, and independent advisers never will.”

Some advisers, such as Bill Raynel, of Investment Solutions Northland, are taking that longer-term view.

He said while he would only collect 0.2% of the balance, over hundreds of clients it would eventually add up. “It’s not a big earner. There is a lot of work involved and just as much compliance required for KiwiSaver as a large portfolio.”

But he said he made a conscious decision to focus on KiwiSaver from its start because the global financial crisis seemed to wipe out the next generation of lump sum investors coming through, who would traditionally have formed his client base.

“I saw a complete and utter lack of trust and confidence in the industry,” he said. “I didn’t know how long it would take to recover. KiwiSaver was something that people would be comfortable with. I’m using it to rebuild my client base across the age ranges instead of concentrating on older people with lump sums.”

He said if he could attract clients for a lifetime of advice, that would add longevity and value for the business over time.

Helping clients with Australian superannuation transfers had been particularly successful and was bringing in significant numbers of new clients, he said.

James said the key would be to attract the right type of client.  If someone could only ever manage the minimum contribution to KiwiSaver, they might not be worth the investment. “If the client can save substantially into KiwiSaver or beyond KiwiSaver, their wealth picture is broader and more complex. Those are the clients who are absolutely worth starting that relationship with, even if it’s only around KiwISaver initially.”