KiwiSaver

Advisers are being offered new tools to help them analyse KiwiSaver funds’ risk.

KnowRisk.biz has been launched by Peter Urbani and offers risk analysis of the retirement savings scheme.

Membership of the website is free but risk tools cost $50 per download.

Urbani said sites such as Sorted provided adequate information for retail clients.

But he said there was a vacuum in the market in terms of risk management information for investment advisers and broker intermediaries.

He said surveys such as those from Morningstar, Aon and FundSource were either paper-based or more expensive.

KnowRisk offers a ranking tool, which sorts funds by more than 100 statistical and statutory fields.

Urbani said advisers could perform sophisticated searches such as: “Show me a list of only those funds whose annualised return is greater than 10%, which are larger than $100 million and whose fees are less than 1.50% ranked by their Sharpe ratios in descending order.”

It also offers a KiwiSaver funds dashboard to provide quick information about funds’ relative return, risk, persistence and costs. Users can vary the weightings of each factor to give funds a percentage score out of 100.

KnowRisk will soon offer KiwiSaver fund reports.

Urbani said discussions of risk should be a key part of advisers’ conversations with clients.  “The AFA is in the best position to be aware of what the client’s risk tolerances are, and their ability to bear risk. That is quite subjective and means different things to different people.”

He said most clients were less concerned about market volatility than what it would mean for their own investment balances and outcomes.

The tools are Excel-based but Urbani said it was likely they would convert to an app eventually.

Funds are reviewed over the past five years to June 30 and updated quarterly in arrears. Only those funds who have data for the full 60 month period are compared.

Urbani said the tools  would require a level of investment knowledge to use.

He said there was criticism of purely quantitative rankings because they are based on historic data only.

“Whilst this is undoubtedly true, it is also true that no one has any data from the future. Oftentimes a quantitative statistical model will outperform purely subjective qualitative views although the ideal is a blend of the best of both.

“While fund holdings and market conditions will change, the behaviour of portfolio managers, their attitudes to risk, and the processes they use to choose investments and manage risk, change far more slowly and are often reflected in the Shape of the probability distribution of the fund especially when compared with those of their benchmarks and peers.”

Advisers are worried about banks moving in on their turf with home loan offers that require customers to have multiple products with the lender.

One adviser, who did not want to be named, said he lost the KiwiSaver account of a long-standing client when he was offered $1500 towards his mortgage if he brought a new product to TSB, which offers Fisher Fund KiwiSaver.

“This wasn’t a written offer or condition of getting the mortgage but he was given the money once he’d signed it across,” the adviser said.

“He obviously felt pressured as he apologised to me, but I agreed he was best to do it, as in the short term it is an obvious decision. Because it’s not a wise move for him longer term, we’re going to bring him back and – to cover ourselves – now need give the appropriate documented advice to do so.”

TSB chief executive Kevin Murphy said he was not aware of an incentive being tied to KiwiSaver, although the bank does offer cash incentives up to $1500 for new mortgages.

When BNZ rolled out its one-year rate of 4.35 per cent earlier this month, it came with the condition that the customer had their everyday banking and one other product, such as KiwiSaver, with BNZ.

Westpac requires that customers have a transaction account, plus a credit card or Westpac insurance product to access its two-year rate of 4.69 per cent. For ANZ’s matching rate, the conditions are the same.

Financial Markets Authority spokesman Andrew Park said it was important that consumers understood the merits of the products they were signing up for as much as they understood the merits of the incentives.

A key point would be whether people were being encouraged to cancel their product with one provider and take it out with another, or just to have products with the bank.

“We are concerned about the level of information, support and access to financial advice that is provided to bank customers when they are presented with the option to transfer or switch KiwiSaver schemes.  This is an ongoing focus for FMA’s work.  In this context KiwiSaver providers need to ensure that incidental rewards or incentives are permitted within the KiwiSaver scheme rules, that they help investors with active decision making and don’t distract investors from choosing a fund based on its merits,” Park said.

[UPDATED, ADDS GENERATE COMMENT] A financial adviser who used to manage a small KiwiSaver scheme says the pressure will be on Pie Funds if it launches into the market.

Pie Funds is believed to be planning to open a KiwiSaver scheme next year.

Pie’s funder and chief executive Mike Taylor was not available to confirm that.

It had reportedly been waiting to get enough funds under management to make the move.  It now has $250 million in FUM.

Norman Stacey’s firm, Diversified Investment Management Services, used to manage the Law Retirement KiwiSaver scheme, with just over $5 million in FUM and 382 members.

He said it would be a courageous step for Pie to enter the market. 

Diversified was recommended to take the LRKS scheme to Fisher Funds, which it did in the middle of last year.

“The FMA indicated they wanted fund managers with substantial assets to be running KiwiSaver schemes. The FMA certainly puts pressure on the little outfits,” he said.

But he said he would love to see Pie Funds succeed with KiwiSaver. “There is a lot of group think to KiwiSaver, they are much of a muchness if you deal with the big banks and providers.”

He said most were invested in similar ways and that could lead to systemic risk.

Stacey said KiwiSaver seemed to be a numbers game. “Generate is the only one I think of as being independent out there. I don’t think there are too many smaller ones left.”

Generate chief executive Henry Tongue said: “I think we need more KiwiSaver providers. Consumers will be the winners as competition will drive the industry to provide better products and service. Generate was voted Investment Provider of the Year 2015 by the PAA, we were ranked 1st for services earlier this year by Sorted and in the most recent FundSource tables our Focused Growth Fund was the top performing KiwiSaver Growth fund with a return of 27% for the year. Our Conservative Fund also topped the Conservative KiwiSaver rankings for the year. The net result of that is we are growing strongly with over 11,000 members and around $100m under management.”

KiwiSaver members expect their providers to offer them insurance, Mercer’s New Zealand managing director says.

Mercer has launched two new products that have additional benefits for people who are also members of the firm’s KiwiSaver scheme.

LifeProtect pays out in cases of death and terminal illness. BillProtect insures against inability to work due to redundancy, illness or injury.

Mercer KiwiSaver members who claim on either policy because they are off work will also receive a monthly contribution of $200 into their KiwiSaver scheme account.

The policies are underwritten by Cigna.

Mercer managing director Martin Lewington said research had shown people expected to be offered insurance by their KiwiSaver provides and were highly likely to buy it.

He said there was a high degree of interest in the product.

The policy price would depend on the personal risk profile of the person taking out the policy but would start at $15 a month.

The insurance contributions to KiwiSaver would be enough to give the insured customer the full member tax credit from the Government each year.

Lewington said the impact of the cover would then be amplified because the money would be invested until retirement.

He said the policy, the first KiwiSaver cover in the market, was a way to differentiate Mercer from its competitors.

“Differentiation is about innovation and focusing on customers.”