KiwiSaver

An authorised financial adviser who has been granted an exemption to offer personalised roboadvice says the process was an involved one.

Clive Fernandes is director and founder of National Capital, a financial advice firm that focuses on KiwiSaver.

It is the fourth business to be granted the exemption by the Financial Markets Authority, behind Kiwi Wealth, Nikko Asset Management and Cigna Life.

He said he had been working "behind the scenes" for the past seven months on the application process to be approved to offer financial advice, and building the KiwiSaver roboadvice service.

"Our digital advice service is aimed towards solving the issue of everyday Kiwis not having access to personalised advice for their KiwiSaver investments," he said.

"We currently have a working digital product which we are rolling out to an initial set of users. Users can start the advice process by going to our website and use the service there. We're working with a group of KiwiSaver providers and may add more as time progresses.

"Right now every piece of advice that goes out will be vetted by an AFA to ensure that the SoA is fit for purpose for the user based on the data provided and matches what a human adviser would recommend based on that data. Both data collection and delivery of the final recommendation happens online."

Schemes are ehortlisted using the FundSource performance tables and FundSource star ratings.

National Capital then uses Morningstar's quarterly KiwiSaver surveys to determine if the fees charged are reasonable. The highest rated fund is then recommended.

"We started off with the intention of using as many or even all of the KiwiSaver providers in our universe of funds taken into consideration," Fernandes said on his website.

"However, as we progressed on evolving the business model, we realised that it would not be feasible for us to monitor all 217 KIwiSaver funds. We then decided it would make more sense both from our and the clients perspective if we were to focus on a select group of providers that we were happy would be able to provide us with a good range of options from which to select appropriate funds for our clients from.

"We initially made contact with all the retail KiwiSaver scheme providers. We shortlisted those who had business policies that allowed and encouraged them to work with external financial advisers. We then had a series of meetings with representatives from all those schemes."

National Capital now works with Aon, ANZ, Milford Asset Management, Fisher Funds, Generate and Booster Investment Management.

On its website, it says it will not market itself as independent because it will be paid commission.

Fernandes said the process of applying for the exemption had been a long one.

"The application process was not an easy one, but it was well worth it. It has taken us six months to go through the exemption process, and part of the process was ensuring we had the right processes, policies and structure in place. I do not feel that the process could or should have been faster. We're talking about a service that could affect the lives of tens of thousands of Kiwis and I was impressed by the FMA's thoroughness and support through the process. 

"As a company, our focus is on good client outcomes, and having a robust compliance regime to ensure those outcomes. We've built our processes and structure not for what we are as a company now, but for what we aim to become. We're 100% focussed on KiwiSaver for now, since we believe it's an area we can effect the most good."

Financial advisers are stepping in while the Government 'does nothing' to ensure KiwiSaver works for New Zealanders, one market commentator says.

The recent Morningstar KiwiSaver report showed some of the schemes that deal most commonly with financial advisers were lagging behind industry average returns.

In the year to December, default KiwiSaver funds returned an average 1.5%, conservative 1.3%,  and moderate funds 0.4%. Balanced funds were down an average 1.3%, growth down 2.1% on average and aggressive down 4.1% on average.

OneAnswer funds struggled to meet that return – the conservative fund was up only 0.5% in the year, conservative balanced down 0.7%, balanced down 1.9% growth fund down 4.4%.

AMP’s LS aggressive fund was down 4.2% for the year.  NZ Funds’ growth fund was down 8.3% and Booster’s geared growth fund was down 5.9%.

Chris Douglas, principal at MyFiduciary, said even if adviser-distributed funds were not topping the tables, their clients should end up better off.

“Look at the where the money is invested for the adviser-distributed options and there tends to be a great allocation in balanced- and growth-oriented KiwiSaver schemes, where a large portion of those who are not using an adviser are in the default options earning a very meagre return. As a result, the average investor who has used an adviser would have done materially better than the average investor who hasn't,” he said.

The risk profile of their KiwiSaver was one of the most important decisions an investor could make, he said.

“Advisers have tended to place their clients in the higher risk options which have performed materially better than those in conservative options, as they should over the long-term.

“I think that many advisers are playing an important role in KiwiSaver. As a result of the poorly structured default process, many investors are far too conservatively invested – especially those with 15-20 years till retirement. They are really missing out and should be invested into a balanced or growth scheme, which is where they will get the best potential returns from. So, you could also say that advisers appear to be doing a very important job by ensuring that clients are appropriately, given the government is doing nothing. “

About 60% of all KiwiSaver funds tracked by Morningstar ended 2018 in the red.

It has released its latest KiwiSaver survey, showing sharemarket volatility hurt fund managers.

Returns for the calendar year ranged from 3.60% down to a loss of 6.77%. The conservative category recorded an average return of 1.3% for the year, followed by moderate funds at 0.4%, balanced with an average  loss of 1.3%, growth an average loss of 2.1% and aggressive an average loss of 4.1%.

The top performers over the quarter included FANZ Lifestages KiwiSaver Income, Fisher Two KiwiSaver Scheme and Aon KiwiSaver Russell Lifepoints.

Milford KiwiSaver Active Growth Fund topped the performance across all multisector categories over 10 years.

This approach was originally launched as a domestic-equity capability but has become more diversified as it has grown with offshore exposure and investments across asset classes. Performance has stacked up favourably against peers, with returns comfortably ahead of the category average.

"Despite a difficult year for many other equity markets New Zealand shares delivered a positive return of 4.9% and was one of the best performing developed economy equity markets last year," the report said.

"Australian shares fell 8.2% over the quarter and 2.8% over the year. The Achilles heel of the Australian market was the large financial sector, which dropped by 14.8% in the wake of highly damaging findings by the Royal Commission. There were patches of positive performance: the defensive consumer staples stocks performed reasonably well as did IT shares, and the miners were also ahead for the year.

"But the dead weight of the struggling financials, plus losses for the industrials and consumer discretionary stocks were the dominant influence. For New Zealand investors, the losses in Australian dollar terms were compounded by the appreciation of the New Zealand dollar against the Australian dollar."

Booster has snapped up the former Mahana Estates winery site, and announced the formation of the Booster Wine Group.

The high-profile Nelson winery went into receivership as its owner became embroiled in a bitter legal fight with a Las Vegas businessman.

KiwiSaver provider Booster spotted the opportunity to add the site to its other wine investments: Awatere River, Waimea Estates, Bannock Brae and Sileni Estates.

The fund manager said the purchase, and formation of Booster Wine Group, would create a new investment opportunity for members.

“Most New Zealand wineries, as small independent businesses, have always been challenged by scale.  The Booster Wine Group allows our wineries to focus on what they do best – produce world-class wine, while still remaining Kiwi owned and operated,” said managing director Allan Yeo.

“The wine industry is one of New Zealand’s most successful exports.  We’re pleased to be keeping a piece of it in local ownership and giving everyday Kiwi investors the chance to share in its success.”

He said only a fraction of KiwiSaver money was being invested in New Zealand businesses at present.

Booster has several other investments in its pipeline which are expected to be finalised and announced this year.

“Booster Tahi helps invest Kiwi savings back into successful New Zealand businesses to help fulfil their growth potential and to keep them Kiwi owned.  While our initial focus has been on horticulture investments in wine, kiwifruit and avocados, we see exciting opportunities in other areas as Tahi grows,” Yeo said.