KiwiSaver

A trial has begun that will investigate the effectiveness of behavioral interventions to help KiwiSaver members make better financial decisions.

The six-month project is an initiative from Kiwi Wealth, the Financial Markets Authority (FMA), the Commission for Financial Capability, and the Ministry for Business Innovation and Employment (MBIE).

It will test how changes to the design and phrasing of enrolment communications can prompt people to assess and change their fund to suit their retirement expectations. 

The trial, beginning this week, is expected to include approximately 3000 new entrants to the Kiwi Wealth KiwiSaver Scheme.

Joe Bishop, Kiwi Wealth head of retail wealth and marketing, said simple changes to how providers spoke with their members could have a big impact on their financial decisions and future retirement income.

“We’ve observed that new KiwiSaver members are most likely to switch from default funds within the first month of enrolling.  The actual number of people switching is still quite small however, with only about 5% of members doing so,” he said.

“Currently, provider communications to new members is dull, very transactional, and has little emphasis on their future retirement income.  With this trial, we’re tweaking our communications so KiwiSaver members are prompted to make decisions now with the end goal in mind, growing their retirement income.

“Improvements to the design of the welcome letter and how words are phrased might seem like simple details, but the science suggests they’re powerful motivators.  When you consider there are 2.5 million people enrolled in KiwiSaver, the smallest upswing in people’s engagement with their fund could lead to a massive improvement on Kiwis’ retirement savings.”

In April, the FMA published a cross-government paper which assessed how personal preferences and beliefs can influence financial decision making.  It found that people typically have a natural bias for the status quo which makes them better at day-to-day money management but less inclined to consider long-term financial planning.

To help people overcome this bias, the paper cited four interventions that have shown to result in effective and measurable behavioural change.  Known as the EAST framework, it says communications could be more persuasive if they are:

·         Easy – simple language and reducing the perceived hassle with changing funds.
·         Attractive – framing communications so that its interesting with a strong call to action to change funds.
·         Social – showing that others are changing funds and improving their retirement income.
·         Timely – prompt action when people are likely to be most receptive (when they first enrol).

Paul Gregory, FMA director of external communications and investor capability, said: “The best time to help New Zealanders focus on making good financial decisions is when they’re actually doing it and so this is where providers have an essential role. So, as well as the work government agencies are doing, we look to industry to use these insights positively: in their product design and marketing, disclosure, and in their sales processes for all products including KiwiSaver.”

 

New Zealand’s investment management industry is worried about the influence and domination of the big banks on KiwiSaver, a new survey has shown.

BNP Paribas Securities Services has released the result of research undertaken with local superannuation funds, KiwiSaver providers, asset managers and financial adviser groups.

New Zealand head Doug Cameron said the retirement savings scheme had been transformative.

Before KiwiSaver launched, the funds management industry had been in the doldrums, with a stagnant employer and retail superannuation industry and the non-super retail unit trust market in serious decline, he said.

“Just nine years later that state of affairs has been reversed: KiwiSaver and the wider retail unit trust markets collectively manage over $60 billion – at the moment split fairly evenly between the two,” he said.

“While the $20 billion-plus employer super industry will undoubtedly shrink following a regulatory overhaul, it won’t disappear completely. The wholesale market is sustained by a vibrant charity and community trust sector and, increasingly, Maori investment funds.”

He said the market was in good health and poised for growth.

But despite its successes, Cameron said there were still structural issues with the KiwiSaver market that respondents wanted to see addressed.

Participants expressed concern about the domination by banks (27%) and local access to advice (20%), coupled with conservative investment choices (19%). They said compliance made it hard to obtain cost-effective advice, and members were sometimes “churned” between banks without enough education.

Some respondents said the market was too small to support all the providers and some would end up having to merge. More than 20% expected to see more consolidation of KiwiSaver over the next 12 months.

But meeting regulatory change was seen as the biggest trend for the next year by the majority of respondents. They said they expected to see more confusion among investors, homogenisation of financial advice and portfolios, pressure to reduce fees and increasing costs with no direct added value.

Keeping up with new regulations while complying with existing rules, along with reporting to regulators, were the top worries for respondents, with over a third (35%) of those surveyed ranking these factors as most likely to keep them awake at night. Respondents cited Financial Markets Conduct Act compliance as one such regulatory burden.

But Cameron said the survey found the FMCA also provided some positive contributions, such as improved processes, raising industry standards, and improved disclosure via greater simplicity and consistency.

The respondents expected global equities to be the best-performing asset class over the coming year.

A new, low-fee KiwiSaver scheme being launched today will be a good fit for financial advisers who work on a fee basis, its managing director says.

Former Tower Investments boss Sam Stubbs is launching Simplicity, a not-for-profit scheme run in the style of health insurer Southern Cross.

It will be run by a charity and its launch is being funded by Stubbs personally.

Stubbs said he wanted to create a “Vanguard of New Zealand” – a low-cost model that would shake up the KiwiSaver industry in this country. He said the providers had been allowed to become too complacent and members were paying too much as a result.

“There’s the Vanguard effect – as soon as Vanguard enters the market, the whole thing changes.”

He said KiwiSaver had become a “gravy train” for the big Australian banks in New Zealand.

“Compared to similar savings schemes in other developed countries, fees are very high. Profits for KiwiSaver managers are at $150 million now. Without change, we think they will be at $1.3 billion by 2030.”

Simplicity will charge $30 a year in administration fees and 0.3% in fund management. Stubbs said that was less than half the industry average. The same fee will be charged across all of Simplicity’s funds. Of that fee, 15% will go to a charity that will work to improve financial literacy.

Simplicity will offer advisers no trail commission, unlike other providers such as Generate and Grosvenor, but would suit those who worked for fees, he said. “If they can add value for their clients by using the product and maximize returns, then that helps them justify their fees. For fee-based advisers, this is very suitable. For those on commission, it’s less so.”

Simplicity intends to have more than 9000 investments in 23 countries in each fund. Overseas investments will be managed by Vanguard. Each investor’s savings are held in custody by Public Trust.

Stubbs said he also had plans to branch out into other financial products eventually, including life insurance, which he said was much more expensive than it needed to be.

Simplicity trustees include Peter Neilson, former chief executive of the Financial Services Council and Craig Richardson, chief executive of Wynyard Group.

Directors include Kirsty Campbell, formerly of the Financial Markets Authority, and Mark FitzGerald, former director of private banking and wealth at Westpac.

KiwiSaver funds with allocations to defensive assets are starting to shine again, new data shows.

For a number of years now, aggressive and growth funds with heavy allocations to equities have been the star performers.

But the latest Morningstar survey, for the June quarter, showed more conservative options gaining ground amid international jitters.

Most KiwiSaver funds had a positive quarter.

Morningstar’s Australasia director of manager research ratings Kathryn Young said investors who were most exposed to defensive or domestic assets did best.

“Investors should, however, focus on ensuring that their KiwiSaver option’s asset allocation best fits their investment timeframe and risk profile.”

Average multisector category returns were all positive for the June quarter, ranging from 0.34% for the aggressive category to 1.57% for the conservative category.

Aggressive funds were flat on average over the year to June 30, 2016, while the conservative category gained 5.2%. Over longer periods, however, funds with greater equity risk have generally gained more.

Notable performers over the quarter included ASB KiwiSaver, whose growth and balanced options topped their respective peer groups.

The best performers in the multisector conservative category were Milford KiwiSaver Conservative (2.43%), followed by Fisher Conservative KiwiSaver (2.42%), and Aon KiwiSaver Russell Lifepoints Conservative (2.10%).

KiwiSaver assets on the Morningstar database grew to $33.40 billion at June 30, 2016 from $954.10 million at June 30, 2008. The industry remains highly-concentrated, the six largest KiwiSaver providers accounting for 85.9% of assets on Morningstar’s database