KiwiSaver

KiwiSaver investors are suffering less of a “behaviour gap” in returns than investors in other New Zealand managed funds, new research from Morningstar shows.

The research house is producing a new set of data that considers investor returns, as well as fund managers’ performance.

This highlights the difference in what investors themselves receive as opposed to what the fund manager produces.

Director of manager research Tim Murphy said investor returns tended to fall short of time-weighted returns because the “fear and greed” cycle drove people to buy and sell at the wrong time.

The gap gets bigger the more volatility the asset class has.

In the US, Morningstar research shows there is a gap in almost all asset classes – although in US sector funds investors were outperforming the average annual fund returns.

In New Zealand, KiwiSaver members were doing better than investors in other managed funds, Murphy said.

Those in New Zealand equities via KiwiSaver had returns that were 0.86% per year lower than time-weighted returns over the past five years. There was also a lag in multi-sector aggressive and growth funds.

But managed fund investors lagged in Australasian equities, aggressive multisector funds and moderate multisector funds.

In aggressive multi-sector funds, investor returns were 2.4% less.

Murphy said the research was intended to look at funds at aggregate level across asset classes rather than focusing on individual funds.

He said investors in KiwiSaver funds were probably doing better because there was a lot less buying and selling happening and investments were made automatically from people’s salaries. “There’s a narrower gap, a consistent pattern over time.”

Murphy said he would continue to work on the New Zealand experience over the rest of the year.

Morningstar also released its latest sustainability ratings – revealing that six of 44 funds had received high ratings: Harbour’s Australasian Equity Focus Fund and Australasian Equity Income, AMP Capital RIL NZ Shares, Russell Investments NZ Shares, AMP Capital’s Global Listed Infrastructure and RIL Global Shares.

Murphy said there were pockets of investors seeking sustainable investments. The New Zealand contingent was “small but vocal”, he said.

He said Morningstar was working to develop data that would be meaningful at adviser level and add value to investors and advisers who were interested in the issue.

Boutique KiwiSaver manager Generate has ticked over $200 million in funds under management.

It grew by 3000 members in the last quarter – faster than some of the bank-owned schemes.

Chief executive Henry Tongue said one of the key points of difference was that Generate advisers helped their clients understand KiwiSaver’s benefits and to find a fund that suited them.

He said clients found the process valuable and many moved out of default funds into more age- and risk-alternative options.

Generate has a lower percentage of members in conservative funds than the market as a whole.

Tongue said he was grateful to advisers and Generate’s members for their support in reaching the $200m milestone.

“The level of growth stemming from ‘word of mouth’ has been phenomenal and we are working harder than ever to keep up the high level of service.”

Advisers need to get New Zealanders off “autopilot” when it comes to retirement savings, one commentator says.

KPMG has released its second Funds Management Industry Update, which covers the strengths and weaknesses of the country’s funds management industry.

John Kensington, KPMG’s Head of Financial Services, said the industry needed to adapt to the way customers wanted to deal with it.

“Customers want to interact digitally, which is driving the continuous need to make everything one click away – a trend that we are now seeing in the funds management industry, specifically KiwiSaver,” he said.

Kensington said New Zealanders were becoming more engaged with KiwiSaver but were still not as financially literate as they should be. “If we rated New Zealanders two or three out of 10 last time, it might be 2.1 or 3.1 now,” he said. “It’s not a huge improvement.”

Many were on autopilot for KiwiSaver, with the money coming out of their salaries before they gave it any thought, he said. That could be a blessing in a volatile market but would mean savers could end up with poorer returns over the long run than those who took an active interest.

But Kensington said New Zealanders were embarrassed about a lack of understanding of financial concepts and often did not ask for advice when they needed it.

He said there was a large amount of money invested through KiwiSaver that had had no advice at all related to it.  The number of people still invested in default funds showed the need for better help, he said. “I would hate to see financial advisers squeezed out of the market.”

Those who were invested too conservatively could have a case to argue that their providers were remiss in not guiding them on to a better track, he said. “They might have a case to say ‘you’ve earnt all these fees from me and you never told me I needed to change’.”

The report identified roboadvice as a likely future disruption for the industry. Kensington said it could be useful for people with smaller amounts to invest.

“At the moment  they are not getting advice – roboadvice might give them that but will they understand it, and listen to it?”

The paper also included an analysis of the “4% rule”, which assumes that is a safe rate of capital withdrawal for retirees.

Kensington said that rule would likely no longer apply in the current low interest rate environment, once fees and other investment costs were included. The report said safe withdrawal rates needed to start at 2.5%, not 4%. “Most people can’t afford to live on 4%. When you’re taking out less you need to have quite a pool of money,” Kensington said.

New Zealanders with memories of financial crisis pain may be letting misinformation get in the way of retirement savings, a new survey shows.

The Commission for Financial Capability has released the results of its survey of 2200 people, which asked why people joined KiwiSaver, or what put them off.

The most common reason to enrol was to save for retirement. One in three cited this reason.

That was followed by the $1000 kickstart, which is no longer available.

A third of people who’ve never signed up said they had concerns about the scheme, compared with 17% of active members.

Of those concerned non-members, three-quarters said they didn’t trust the government to leave the scheme alone, 64% worried about getting their money back and nearly half had doubts about the providers – either going out of business or their ability to make the right investment decisions on their behalf.

CFFC group manager of investor education David Boyle said: “There appears to be a problem with a lack of understanding about KiwiSaver that’s putting some people off joining. So, more needs to be done to make sure people know the facts, rather than myths, and can make better-informed decisions around their long-term financial planning.

“The fear may be because of what occurred during the credit crisis: as finance companies collapsed investors’ money in those companies was lost. However, KiwiSaver members’ funds don’t go into the provider’s company, they are invested on behalf of the members into a range of assets like shares, cash, property and fixed interest.”

The research found that most people were aware of at least one of the benefits of being in KiwiSaver, but few people knew about all four of the main ones.

The most well-known was the employer contribution, which was on the radar of 71% of those surveyed. 63% knew you can’t access your funds until you are 65.

Just over half – 53% – knew about the HomeStart grant to buy a first home and just under half (47%) knew about the $521 member tax credit the government gives savers every year. That figure dropped to 27% among non-members.

And a quarter of those who had never joined were unable to name any of the benefits.

oyle said: “My concern is that people think they have to put the full $1043 in each year before they get the matching $521 member tax credit from the government. But the reality is that for every dollar you put in, the government adds 50 cents up to $521.”

More than two out of three people said they weren’t sure that NZ Super would be enough to retire on.

Boyle said: “The worrying thing is just on 50% of non-members are relying on NZ Super or don’t know how they are going to fund their retirement.”

Of those who have stopped contributing, 40% said it was because they were no longer working and 35% couldn’t afford to contribute.
Nearly 80% of active members said the scheme should be compulsory and more than a third of non-members agreed.