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.”

Thirteen customers have complained about bank KiwiSaver sales and advice processes over the past year, the Banking Ombudsman says.

The dispute resolution scheme has released its annual report, which shows it received 2458 inquiries in the year, up 2.6 per cent on the year before. Those inquiries led to 568 complaints, down 1.4 per cent. From there, 259 disputes were received, down 4.1 per cent.

A dispute is triggered when a complaint referred on by the Banking Ombudsman cannot be resolved by the banks.

Service-related issues were the biggest underlying cause of inquiries, complaints and disputes. This included things such as the failure of bank staff to act as instructed and concerns about debt collection.

Break fees on mortgages were also a cause of complaints, as were declined insurance claims.

Ombudsman Nicola Sladden said there were a number of complaints related to decisions about allowing early withdrawals from KiwiSaver.

But other bank customers complained about the quality of information that was provided when they switched funds or providers.

“We had 13 cases last year and some related to transfer of pension from Australia, and others being signed up to KiwiSaver without full knowledge or understanding the implications.”

She said the Financial Markets Authority’s guidance should help.

The FMA has indicated that it is aware that some banks are struggling with how to offer more than printed information on KiwiSaver within the constraints of the Financial Advisers Act, and will offer them more assistance to help them comply.

Banks told Good Returns it was sometimes hard to offer personalized advice within the confines of a QFE structure.

“All financial service providers are committed to improving the quality, simplicity and clarity of the information provided to customers and that’s something we would certainly support,” Sladden said.

She said the 13 complaints was not a noticeable increase from earlier years.

KiwiSaver members in conservative funds have received returns just 2.1% per year less than those who took on extra risk in a growth fund over the past eight years.

That is the finding of Melville Jessup Weaver’s (MJW) latest investment survey, which showed the median annualised return from growth funds was 8.2%, compared to 6.1% for conservative ones.

“[This is] perhaps less than one might have expected at the outset,” it said.

MJW actuary Ben Trollip said over the past five years there had been more difference – growth funds had returned more than 12% per year compared to 6.8% for conservative.  Returns from growth assets over that period have been particularly strong.

Trollip said he would expect 2% difference to be “about right” in future years. But that should not deter people with a longer investing timeline from taking more risk, he said. “Even a difference of 2% per year is going to add up. If you have a longer time horizon and can weather some volatility a more aggressive strategy makes sense.”

He said it was also important to consider the difference between funds within each category.

The best performing fund over the most recent quarter and year was Milford Active Growth, returning 5.9% and 15.2% net of fees respectively. BNZ has had good results with its growth fund third this quarter while its balanced and moderate funds each came first in their respective categories.

“There’s a wide dispersion of returns within each category, it shows it’s important not only which strategy you choose but which provider you go with.”