KiwiSaver

New Zealanders have missed out on KiwiSaver returns because of their lack of exposure to the local share market, one manager says.

Milford Asset Management executive director Brian Gaynor has rejected calls for KiwiSaver to be made compulsory, saying it would take the competitive onus away from fund managers.

But he said changes were needed. 

Gaynor said, although the NZX had risen strongly every year since 2012, only about 10% of KiwiSaver money was in the local share market, so KiwiSaver members had missed out.

Milford’s active growth KiwiSaver scheme usually has about 75% of its funds invested in Australasian equities. Its conservative and balanced funds can have up to 20% and 40%, respectively.

But Gaynor said the New Zealand market was too small and did not offer the investment opportunities people wanted.

“It doesn’t have financial services companies, except for Heartland Bank, whereas in Australia, the big four banks are all worth more than the total value of the New Zealand share market, so the NZX doesn’t have the opportunities for KiwiSaver investors.”

Instead, KiwiSaver money was going offshore, into cash and bonds, he said. The foundation of KiwiSaver was based on a defensive asset allocation.

“I’d also like to see more KiwiSaver funds invested into equities rather than into defensive assets like cash and bonds. Default schemes are some of it but even non-default schemes are even a bit conservative, too.”

Gaynor said he did not agree with a recent focus on fees. In a New Zealand market, fees were not such an important consideration, he said. “We’re quite different to the United States.”

The top-performing funds were those with average or slightly above average fees, he said. “New Zealand KiwiSaver funds are multiassets, they’re much more complex than the type of funds where lower fees mean a difference over a period of time.”

Michael Cullen chairing the new government’s tax working group could be a boon to the KiwiSaver industry, it has been predicted.

Cullen, the architect of the retirement savings scheme, will head up the group which will have  “wide mandate” to look at New Zealand’s whole tax system. It has specifically been tasked with looking at GST and potential measures to slow growth in house prices.

But KiwiSaver providers said the scheme could get some attention, too. Changes to the tax regime could make the scheme significantly more appealing, for example, if deductions were exempt from tax or other concessions were put in place.

In Australia, deductions made before tax are taxed at a rate of 15 per cent. Deductions made from after-tax income are not taxed.

There has previously been criticism that long-term New Zealand savers in managed funds are at a tax disadvantage.

The FSC put out a report in 2013 that said: “No other country has out combination of comprehensive taxation on the return on debt instruments as they accrue, no superannuation tax concessions, no tax on capital gains on rental properties, and the unconstrained deductibility of the nominal value of interest against other income on debt used to purchase rental property.”

A decision around the KiwiSaver scheme was withheld from one of the briefings to incoming ministers made public last week.

A description of the decision, in a document for Commerce and Consumer Affairs Minister Kris Faafoi, was withheld under the Official Information Act. It was reported that, according to the State Services Commission the rule is applied where there is concern that the release of the draft advice would interfere with the ability of a decision-maker to consider the advice tendered.

Sources speculated that could be related to KiwiSaver coming under the remit of the working group – although most providers spoken to said they were in the dark, as well.

Finance Minister Grant Robertson has already indicated that Labour wants to increase the minimum regular KiwiSaver contribution rate from 3% to 4.5%, and make the scheme universal – although there would still be significant exclusions, including for students, beneficiaries and self-employed people.

Nikko Asset Management is to launch a KiwiSaver fund offered via roboadvice.

The fund manager is set to offer the scheme to the market next year.

The fund manager has a strong institutional backing in New Zealand but has been working on growing its reach in the financial adviser community.

It is also planning to apply for an exemption to enable it to offer roboadvice and the new KiwiSaver scheme will tie into that.

Clients may also be able to access the manager’s other funds through the same robo platform.

It has 11 retail products and 16 wholesale funds at present.

Investment documents for the new KiwiSaver scheme are expected to be lodged in the early part of 2018. Clients have been given advance notice of the move.

Nikko made a submission earlier this year on the Financial Markets Authority’s proposed exemption to allow roboadvice ahead of the implementation of the Financial Services Legislation Amendment Bill.

In it, it said there were too few advisers to provide advice to all consumers.

The cost of tailored advice was too high for those with low asset balances. Some people did not know how to seek advice or wanted to remain anonymous while they looked for solutions.

“Roboadvice is not something which replaces the human adviser but provides a complementary service that meets needs that may otherwise be left unmet,” the submission said.

Low-cost KiwiSaver provider Simplicity is making changes that affect advisers.

Founder Sam Stubbs said “quite a few” members were now coming through advisers.

It has put its funds on to the FNZ platform and is working through the process of placing them with Aegis. Simplicity offers both KiwiSaver and non-KiwiSaver passive funds and has almost $300 million under management.

He said that would make it possible for preapproved fee-based advisers to access the funds. “We previously haven’t offered funds on any platforms. This is a shift for us but it has to be linked to the provision of advice.”

It is also developing a portal to give advisers access to their clients’ KiwiSaver accounts so that they are able to track their progress and use it in their planning conversations.

Details of vetted fee-based advisers would also be made available to Simplicity clients who decided they wanted advice. Those advisers will receive no kickbacks from Simplicity and will not be charged for referrals to them. Fewer than 50 are expected to be listed.

Stubbs said he expected demand for advice to increase and Simplicity was keen to facilitate that with fee-based advisers.

Advisers should get in touch if they wanted their details offered to Simplicity clients, he said. “We’re hoping over time a whole bunch of clients proactively approach them for advice. We’re interested in playing our part so people get they advice they want, when they want and from whom they want.”

Stubbs said he would not deal with anyone seeking commission. “I believe everyone, including advisers, is loyal to the person who pays them. When you get commission, that’s the product provider.”