KiwiSaver

Craigs Investment Partners is reporting solid growth in its KiwiSaver scheme that allows investors to select their own investments.

KiwiSTART Select is a platform that offers a range of 250 nominated securities from which clients can construct their own KiwiSaver portfolios.

Nominated securities include QuayStreet Unit Trusts and a range of investments in equities, investment trusts, managed funds, index funds and listed property trusts as well as cash.

The scheme returned 12.3% in the year to March 31 on a n aggregated basis but each member’s portfolio delivered different returns.

There were 4379 members in the scheme at the end of the 2015 financial year, compared to 4500 in Craigs’ more standard KiwiSaver scheme.

It had 216 new members over the year, including 36 transferring from an Australian scheme.

It charges an admin fee of $30 per year, and up to 1.25% for investments in self-selected portfolios.

Craigs Investment Partners head of client services Stephen Jonas said the investment selection idea was  in line with Craigs’ philosophical approach.

He said the objective was for the platform to be as agnostic as possible and operate on an almost self-managed basis.

But he said there were regulatory challenges to overcome. The Financial Markets Act requires a PDS including a risk indicator, which is hard to deduce if individuals’ investments are not known.

Jonas said the solution would probably be to describe it as a high-isk fund.

He said he expected interest to grow in DIY approaches as balances increased. The average balance of KiwiSTART Select members is higher than the industry generally, at almost $30,000.

There is no minimum balance required but every client has an AFA associated with them and those with very small balances are guided into managed funds as a way to get started. “As balances get larger they can start to enrich them.”

Jonas said he expected other similar products to launch. “In Australia just under 30% of super scheme investments are self-managed so there is a trend, when the market gets more mature more will step into that space.”

Financial advisers are not significantly influencing the rate at which new KiwiSaver members are enrolling in the scheme, a new Treasury report says.

The report by Treasury analysts was released this month.

It says four out of five new enrolees join the scheme via banks and the impact of financial advisers on KiwiSaver is limited.

“The data suggests that the role of independent financial advisers is minimal in new enrolments in KiwiSaver and therefore that competitive pressure from financial advisers using their comparative advantage at selecting the most optimal fund on the basis of risk, return and cost also appears to be minimal,” the report says.

It said KiwiSaver appeared to be competitive but there was a growing level of concentration in the market, driven by the dominance of banks and a number of mergers and takeovers.

Whether that would lead to cost reductions and efficiency gains would depend on the financial capability of members, the report said.

“Certain trends such as a growing significance of large banks could detract from this and should be monitored to ensure that contestability in the market exists.”

Between 2007 and 2014 the major banks increased their share of the KiwiSaver market from 59% to 65%.

New Zealand’s banks have a larger chunk of our super savings market than their parent companies across the Ditch.

The five largest and ten largest Australian superannuation funds by assets in 2013 accounted for 16% and 27% of total industry assets, respectively.

In comparison, the top six providers by AUM in the KiwiSaver account for 91% of the market.

The report said New Zealand’s banks had the benefit of a strong branch network that was not available to other financial services providers.

They were able to leverage their other relationships with consumers to boost their KiwiSaver reach.

“Numerous media reports in addition to the Commerce Commission have noted the direct sales strategy of the major banks, for example packaging KiwiSaver products with other financial products such as mortgages, insurance and personal banking so that the consumer has all their personal finance products with one institution. “

The report said KiwiSaver fees were high by international standards and returns were mixed compared to the investment performance of Crown financial institutions.

BNZ is launching a new KiwiSaver First-Home Buyer Fund.

This new fund, open to customers from Thursday, extends BNZ’s KiwiSaver Scheme fund choices from five to six.

It is designed for people saving for their first home using BNZ KiwiSaver and who intend to withdraw their savings for their deposit.

BNZ head of wealth Donna Nicolof said: “We have identified that five years is the typical timeframe for people to withdraw their funds to purchase their first home.

“The  BNZ KiwiSaver Scheme First-Home Buyer Fund has an investment profile of 85% income and 15% growth. This ratio reflects the fact people saving for their first home are likely to be more averse to investment losses but would like to outperform cash bank deposits in a three- to five-year timeframe.

“At BNZ our mission is to help people be good with money and the BNZ KiwiSaver Scheme First Home Buyer Fund optimises the investment risk for people intending to withdraw their savings to purchase their first house.”

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.”