KiwiSaver

Many KiwiSaver members do not feel they have enough money in their accounts to make seeking advice worthwhile, even if the service is free, one provider says.

Grosvenor is a new default provider of the saving scheme.

As part of its service to clients, it offers them access to an adviser.

Each new member who defaults in is contacted and asked if they would like personalised KiwiSaver advice.

Chief investment officer David Beattie said, so far, only about a quarter were willing. 

“They say no, they don’t need one, they think they don’t have the money or they are embarrassed to rock up to a financial adviser with $1000 and not much else. They appreciate the offer but they don’t see the value in it.”

But he said Grosvenor did not encounter any resistance to the concept of advice at some stage.

Most KiwiSaver members would need to get to a balance of about $20,000 to start to see the need for it, he said.

Grosvenor has agreements with about 400 financial advisers around the country. About 150 have a strong relationship with the firm.

Beattie said advisers were a big part of the Grosvenor business model.

As he worked with advisers over the years he had seen the value they provided and could see that most people would need advice at some time in their lives.

“We are happy to have them embedded in the business model.”

Advisers who deal with Grosvenor KiwiSaver members receive 0.5% commission per year.

Beattie said that made it a good deal for members, who could get advice whenever they needed it.  “It’s a very small price to have someone there to hold your hand when it all goes pear-shaped.”

He said when KiwiSaver was first launched the regulator had viewed it as a product that could be easily bought and sold.

But there was a much higher level of advice needed, particularly when there was a downturn in the market.

“You’ve got to stop people selling low and buying high. There are a huge number of people enrolled in KiwiSaver without access to advice and left to their own devices, doing it without knowledge. It could be a real issue at some stage when the next big market downturn happens.”

KiwiSaver has massively increased the market for financial advice in New Zealand, one analyst says.

Collin Nefdt, formerly of Morningstar and now operating NZ Trends, has released new research looking at performance consistency of the KiwiSaver schemes.

He analysed AMP, ASB, Fisher Funds, Grosvenor, Mercer, Milford, OneAnswer and Westpac and compared their ability to beat their peer group averages, using rolling three-year returns.

His research showed OneAnswer was the standout performer.

Its growth and balanced funds had beaten peer averages in every period surveyed.

Milford also achieved 100% success with its conservative and active growth funds.

None of the others surveyed achieved 100 per cent success by this measure. Nefdt said consistent outperformance was unusual.

He said the same performance consistency would apply to ANZ and ANZ default schemes.  “What this converts to is that, as the largest provider with a 27% market share of members, ANZ ‘s results are having the maximum impact in the industry.”

But he said people needed to be wary of attaching too much weight to past performance. “Members should be more concerned with planning properly, having well-thought objectives and a investment strategy to match. Past performance analysis is highly complex and mean reverting in many instances. I try and stay away from making performance forecasts and projections and suggest that others do the same. One can succeed with KiwiSaver without having to make a single forecast. Experts have been talking about the ‘low return’ environment for a number of years when what transpired is that markets have performed superbly.”

He said, considering Government and other incentives, KiwiSaver offered good value for every dollar of member contributions.

But he said advisers could be playing a bigger role. “KiwiSaver has massively increased the market for advice and has made just about every KiwiSaver participant a person in need of professional financial advice. A fee-based environment should mean that advisers can scour the entire KiwiSaver market for solutions that best fit their clients. This is potentially a massive win-win scenario. During periods of volatility that may tempt members to want to switch and invest emotionally, advisers can play the vital role of  behavioural coach. In this role advisers can keep their clients focused on the long-term and set realistic expectations about market s and performance and let members know that volatility is part and parcel of the long-term investment journey and must be expected.”

KiwiSaver providers are focusing more on pushing products than providing advice to ensure their members are in the right funds, the Financial Markets Authority says.

It has released its first monitoring report on sales and advice practises. The report covers advice given by AFAs, QFEs, brokers and custodians.

Its two main focuses within that are KiwiSaver and AFAs.

FMA director of regulation Liam Mason said most KiwiSaver providers were yet to go through the Financial Markets Conduct Act licensing process.

The FMA knew from its experience licensing DIMS providers that most would have to do some work to lift their standards on things such as governance and oversight. The regulator wanted to set out its expectations, he said. “Our expectations around how KiwiSaver is distributed are going up.”

Providers had an obligation to act in the best interests of clients throughout their KiwiSaver lifetimes, he said.

The report raised some concerns, particularly around KiwiSaver, but Mason said it was not part of any enforcement action at this stage.

He said there were no systemic issues but the report raised concerns that some consumers were not getting the advice and support they needed on KiwiSaver. There were also questions about how conflicts of interest were managed, especially around sales incentives and targets for QFE staff.

Improvements would be needed if providers were to be confident of meeting their FMCA conduct obligations, he said.

Mason said adviser regulation and other guidance messages directed at KiwiSaver providers had led to some becoming reluctant to offer personalised advice at all.

The FMA wanted to engage with them to tackle that, mindful that the Financial Advisers Act would address some of the same issues, he said.

The KiwiSaver providers who took part in the report would be briefed, including two who had a high percentage of transfers which were stopped. The FMA could offer no further information on those transfers.

Mason said only 0.3% of KiwiSaver sales and transfers were recorded as being conducted with personalised advice, which indicated a sales model rather than an advice model being applied.

The report was more positive about the behaviour of AFAs.

Mason said the FMA was largely happy with their willingness to meet the required standards.

He said that would have an impact on the level of future AFA monitoring because the FMA takes an approach of targeting the areas where it sees the most risk.

“In the small number of cases where we do not see a willingness to comply, we are taking this seriously. We are currently in the process of referring two AFAs to the Financial Advisers Disciplinary Committee.”

KiwiSaver providers have been told how the Official Assignee will access the savings of people who go bankrupt.

A long legal fight has been raging over whether bankrupt KiwiSaver members’ money can be used to pay their creditors.

Estimates are that more than 5500 members of KiwiSaver are bankrupt, with accounts worth about $30 million.

The Court of Appeal ruled this year that bankrupts’ KiwiSaver cash did not vest to the Official Assignee, which administers bankruptcies, so could not be used to pay their debt.

It said: “There is nothing in the KiwiSaver Act to suggest that a purpose of the legislation is to accumulate funds for the benefit of creditors in the event of the member’s bankruptcy.  If that were the case, the important social and economic purposes of the Act would be undermined and the burden of providing for the welfare of individuals would fall back on the state.”

DLA Piper, which acts for KiwiSaver trustee Trustees Executors has written to providers.

It says it can still summons people and request information from them, that money paid to a KiwiSaver member during bankruptcy could be claimed, such as money withdrawn in the case of a serious illness, and that it would investigate irregular contributions to KiwiSaver that might indicate people trying to put money into their accounts before they entered bankruptcy.

The Official Assignee is planning to repay money it received from KiwiSaver scheme providers before the ruling that it was not entitled to it.

MBIE is expected to issue a discussion document over the coming months.