KiwiSaver

Banks are hoping more guidance from the Financial Markets Authority will make it easier for them to advise their clients on switching between KiwiSaver funds and providers.

In the FMA’s KiwiSaver report this month, it said there had been feedback from some providers that its KiwiSaver sales and advice guidance was getting in the way of members receiving the help they needed to make decisions.

Some said that the guidance invited a conservative interpretation of how they should engage with members, particularly on changing funds, and had led them to prefer to focus on written, information-only advice.

The FMA has noted that class advice and information-only services, such as paper-based information, do not tend to change investor behaviour.

Sharon McKay, manager of wealth strategy and product at BNZ, said it was a complicated area. She said when KiwiSaver launched, there was no Financial Advisers Act in place and the landscape was quite different.

But the FAA introduced the idea of class versus personalised advice and had constrained the ability of bank staff to engage on the product.

“A QFE can give personalised advice but it still held to the same level of accountability and qualification as a financial adviser,” she said. “It’s difficult in a QFE sense to meet those obligations.”

She said most KiwiSaver conversations were offered as class advice but it was difficult, when staff were having those discussions, to draw the line between class and personalised advice.

It’s phenomenally hard for a client to understand, how do they distinguish what they’ve received. It’s not clear whether they’re getting information, class advice or personalised advice.

“How do you help staff understand where the line is and make sure they don’t breach their obligations by crossing that line? It’s so easy to do. Then there’s the public perception – they don’t even know there is a line.”

The class advice process would include directing clients to a risk profiling tool but often they did not take as risky as investment as they should even after completing that assessment, she said, because they did not have the risk appetite.

McKay said there needed to be more clarity on what advice was and more scope for limited advice.  The ability to offer roboadvice, which is coming as part of the FAA review, would be “hugely beneficial”. “There are 2.4 million people in KiwISaver, you’re never going to get around them all face-to-face or on a personalised level.”

Ana-Marie Lockyer, general manager of wealth products and marketing at ANZ, said the industry had matured in its understanding of how it could provide information to KiwiSaver members within the constraints of the rules. 

She said lots of members indicated they wanted information and ideas to help them make decisions, rather than specific recommendations.
Half of ANZ’s members had said they wanted more free, digital financial advice, she said.

ANZ would try to speak to customers as they joined, she said, when accurate contact information was available. But she said with a growing back book it was difficult to talk to them all.
She said ANZ would rely on a degree of class advice, but also had access to AFAs to offer specialised advice when required.

McKay said the 2010 guidance note on KiwiSaver sales and advice was helpful but did not go far enough because not enough thought had been given to how it would interface with the FAA legislation.

The FMA has said it is reviewing its guidance and will update it soon.

Media headlines about KiwiSaver funds’ exposure to ammunition investments have provided a boost to some financial advisers.

In August, there was a public outcry when it was revealed that a number of funds had underlying investments in companies that made armaments.

While that prompted a spark of interest in the details of KiwiSaver investments, some advisers seized the opportunity to spread the word about their services, too.

Roger Spiller, at Money Matters, said the media coverage, and the development of a web-based tool that offered the ability to see what KiwiSaver funds invested in, had “dramatically increased” awareness and interest in the scheme in general.

“In my over 30 years of promoting ethical investment I have never experienced so much media interest and so many requests for interviews. It seems that there has been a fundamental shift with many investors now wanting tangible proof that their money is not directly or indirectly funding unethical activities,” he said.

“Furthermore many are wanting their money to go beyond avoidance and to have their money invested in businesses than are leaders rather than laggards in applying ESG.”

Bill Raynel, of Investment Solutions Northland, who offers KiwiSaver to clients via New Zealand Funds Management, posted on his firm’s Facebook page, recommending that people in default schemes read about the investments in armaments, and said “if you don’t support their approach, contact us now…”

The post captured widespread attention.

“I posted it on Facebook and Twitter and it went viral,” Raynel said.  “The outcome has seen all KiwiSaver Scheme managers clean up their act in this regard, which is a good thing.”

Peter Lee at C2C Partners, said KiwiSaver could be a big driver in the development of New Zealand’s responsible investment landscape.

“For many Kiwis, it’s been their first exposure to managed funds, so now they have to make a choice – and Sorted et al are all telling them to take more interest in their retirement savings. With 2.4m people in KiwiSaver, you don’t need a big percentage interested in responsible investment to have an impact.”

But he said there was still less preference for responsible investment among his wider investment client base.

“Of those interested in [it[,  most have been what I’d call ‘light green’ investors – they want to do something but are pragmatic enough to recognise the need for trade-offs, especially given the options in NZ are limited,” he said.

“One factor for some is cost:  given my non-RI solutions mostly use Consilium’s  low-cost asset class portfolios, the gap in management fees between funds in my ‘standard’ portfolios and pure RI-based funds is close to 1%. I’ve had the interesting experience of an otherwise RI-inclined couple choose the non-screened option for this very reason. I’m looking to develop a hybrid approach which will alleviate the problem, but it isn’t easy to come up with a low-cost portfolio that’s RI-compliant.”

KiwiSaver members have gained about $2.50 for every $1 they have contributed to the scheme, Milford Asset Management data shows.

The scheme is now nine years old.

Individuals have invested $14 billion in their accounts over that time, but have $35 billion between them now.

The $21 billion in gains is made up of $8 billion in employer contributions, $7 billion in government contributions and $6 billion in investment returns.

Murray Harris, head of KiwiSaver at Milford, said: “It’s been a fantastic success for members and the government. How else could have people got $2.50 for every $1 they’ve put away for their retirement.”

But his colleague, Sean Donovan, said more work was needed to help investors get a better result. Too many are still in the wrong type. While 79% of investors over 18 have more than 10 years until they reach retirement, only 30% of KiwiSaver money is in growth and aggressive funds, and 42% is invested in conservative and moderate funds.

“KiwiSaver has been a big success, but this is the one key area that needs to be improved. If KiwiSaver investors don’t begin to take notice of their choice of fund they will end up with a lot less money in retirement than they otherwise could have. It’s too late when you turn 65 to wish you had done better.”

KiwiSaver providers should be required to disclose a range of extra information in their annual statements, including the total fee in dollar terms a member has paid during the year, the Ministry of Business, Innovation and Employment is suggesting.

It has released a consultation document outlining proposed changes to annual statements for KiwiSaver, superannuation and workplace savings schemes.

In it, it says that many New Zealander do not make good decisions about their retirement savings – such as staying in default funds when another type of fund might be a better option.

While they remembered getting their annual statements, they wanted more information, such as what their projected final balances might mean in terms of a weekly income.

“Given the high levels of readership of annual statements, we believe there is an opportunity for them to be used as a decision-making tool to prompt investors to consider how their current investment choices are impacting their retirement savings goals,” MBIE said.

It is proposing that statements be required to include a saver’s current balance, total fees paid over the year, projected retirement lump sum and income, the total amount the account grew over the year, transaction figures showing money going in and out of the account and the question: How do I increase my retirement income?

“We propose showing members the fee impact in real dollar terms on their statements; that is total fees paid including management and administration charges and performance fees and other charges. The FMA’s consumer research into KiwiSaver annual statements also showed that there is consumer appetite for information about fees: 39% of those interviewed wanted information about how fees are calculated and 37% wanted to see fees displayed in a dollar amount.”

The total fee calculation would be made in accordance with the disclosure of other fees under the Financial Markets Conduct Act, MBIE said. That would include management fees, performance-based fees, other charges and a total.

“Where fee estimates for underlying funds are used, or where it is not possible to estimate fees, the statement should include a footnote explaining this and referring the reader to the product disclosure statement or fund update for full details of how estimates are arrived at, or which funds have information omitted,” MBIE said.

MBIE said it was also considering whether other information would be required such as the investor’s retirement savings history, information on the main types of funds and the investor’s actual investment mix. 

The goal is for the changes to be implemented in time for the 2017 KiwiSaver annual statements.