KiwiSaver

There are calls to streamline the process of transfers between KiwiSaver schemes, to reduce the burden on providers and members.

KiwiSaver transfers are in the Financial Markets Authority’s sights. It has  requested information from all providers about transfers in the last quarter of last year, broken down to the number of days a transfer took to process.

Binu Paul, founder of SavvyKiwi, said there were problems with the current situation.

“There is too much lag between when an investment decision to move is made, and when their account balances actually get transferred, with some taking more than a month,” he said.

“That is assuming the process goes smoothly. I have seen instances where some users on SavvyKiwi have made a decision to move and even received the sign-up pack from the new provider, and they have simply sat on it for up to three months or more, til we have sent them a follow-up email.

“The issue here is about friction. When it comes to client on-boarding, we still have too many manual steps to go through to make things happen. For example, having to manually walk into a storefront with a copy of your ID and utility bill for identity and address verification. If you want people to take action, you have to take away as much friction as possible.”

He said providers also had to go through a lot of time-intensive activities that were ultimately redundant.

Many of the ID requirements were a result of anti-money laundering rules, he said.

“Having said that, you have to remember that KiwiSaver is like the reverse of a ‘gated-community’. Members are welcome to come in but once you are in, you are locked in till a certain time. There is not much mischief you can get up to during that time in terms of money-laundering.”

He said that should make it possible to make changes. “Once you are in a KiwiSaver scheme, after having gone through a check, when transferring to another scheme, do you need to go through the same checks again?  Can we use a Government-maintained central database of individuals that is a single source of truth when it comes to personal IDs and use that as a base for the transfer process?”

He said some of the checks seemed better suited to be deployed when people wanted money out, rather than when they transferred.

Ana-Marie Lockyer, general manager of wealth products and marketing at ANZ, the country’s biggest KiwiSaver provider, said all KiwiSaver providers reported against the requirement that member switches happened within 35 days, or 10 days for members of default schemes.

“We comply with this, assuming we have all the necessary information. We would support any moves to have the same timeframe for transfers whether someone is a member of a default or other KiwiSaver scheme.”

READ MORE: FMA: No hard lines on KiwiSaver incentives

KiwiSaver providers can offer incentives to entice customers to their schemes, so long as they do not distract the customer from making good decisions about KiwiSaver.

That’s the ruling in the Financial Markets Authority’s latest guidance note.

It replaces a 2012 document that had the unintended consequence of reducing the amount of advice being given on the retirement savings scheme.

The FMA’s previous focus on personalised advice only being offered by those eligible by law to give it scared some providers off advice completely.

Liam Mason, the FMA’s director of regulation, said, “We have revised and updated our guidance to clarify how the different categories of advice can be applied to ensure customers are getting the help they need. We recognise advisers and providers should be confident they are acting within the rules.”

The FMA is also issuing a consumer guide, telling people to think about whether they were being pressured and what their options were before they moved to a new scheme.

Mason said the FMA would look at the incentives offered by providers, although it would not draw hard lines. Of interest would be the size of the incentive and how they were sold.

The FMA said that incentives could achieve good outcomes when they encouraged them to get the best out of KiwiSaver.

“We may be concerned where there is a combination of a high-value incentive and an effort to influence a customer to make a significant decision,” the FMA said.

“Our concern would centre on whether the value of the incentive was such that the customer was focused on that.”

It was something that submitters were concerned about.

Glynns Financial Services wrote in its submission: “I have had one mortgage client told that she has to implement new life insurance, income protection and transfer her KiwiSaver in order to get a discounted interest rate and cashback.”

Mason said the main goal of the guidance was to help New Zealanders get the information they needed to make good decisions about KiwiSaver.

The guide makes clear the limits of what can be provided within class advice boundaries.

It says that customers can be told to be in KiwiSaver, to choose a contribution rate that is enough to get the member tax credit, to choose the right type of fund and the correct tax rate.

“A rule of thumb is that you have moved from class to personalised advice when you cannot answer a customer’s question without knowing about their personal financial situation or goals.”

In their submissions, ANZ and BNZ both asked for the guidance to be held back until after the financial advice legislation is updated.

The bill currently out for consultation would remove the class and personalised advice designations completely.

Both said, if the guidance note was issued before those changes were enacted, there could be confusion or “change fatigue” for front-line staff.

The FMA acknowledged that the law changes would effect the guidance, which would have to be reviewed. “In the meantime, this guidance recognises there is an opportunity to remove an identified barrier to New Zealanders getting the help they need to make good decisions about KiwiSaver.”

Mason said the new bill would put more responsibility on the individual adviser to make sure the type of advice they were offering was right for the customer.  It would be a more nuanced approach than the class versus advice delineation.

2016 drew to an unpleasant close for many KiwiSaver funds, Aon’s latest industry survey shows.

In the December quarter, only cash funds posted a uniformly positive return.

Across all the other fund types, most funds went backwards over the three months – although  balanced, moderate and conservative funds were the most affected.

Over the quarter, Kiwi Wealth’s growth fund was the best performer, with a 4.2% return. The worst was Generate’s conservative, losing 2.9%.

Over the past year, Mercer’s high growth fund topped the table with 7.8% and Generate’s focused growth was at the bottom, losing 0.4%.

Guy Fisher, an investment consultant at Aon, said the main issue for the quarter was a rise in interest rates and bond yields, which drove negative returns for domestic and global fixed interest.

“Global shares performed well in anticipation of Trump’s pro-growth policies, but New Zealand shares fell. New Zealand is a high-yielding share market, attractive for investors looking for yield, but vulnerable as interest rates rise,” he said.

“We would expect this volatility to continue. There is uncertainty around the timing and the impact of Trump’s policies. The actual amount of fiscal stimulus may be lower than currently assumed as the government debt to GDP ratio is already very high and politicians will be unlikely to sign off on policies that send it significantly higher.

“Even if they do, passing legislation takes time and may not happen until near the end of 2017. In addition is appears that the Fed will be raising the cash rate this year (probably sooner rather than later), which could send long term interest rates higher. And there is political uncertainty in Europe with elections this year in France, Germany and the Netherlands.”

Fund managers charging high fees for their products have kept a lid on what advisers can earn, Simplicity’s managing director said as the provider launched its first non-KiwiSaver funds.

Simplicity has unveiled plans to branch out into the wider investment funds sector.

Its KiwiSaver scheme, launched last year, has $100 million under management.

The funds will operate on the same basis. Each fund will have 7000 investments in 23 countries and be fully hedged to the New Zealand dollar.

Overseas investments will be managed by Vanguard.  There will be conservative, balanced and growth options.

Fees are 0.31% plus $30 a year for each fund. Stubbs said that was between 50% and 75% cheaper than the average diversified investment fund in the market.

“A Kiwi with $50,000 invested in our growth fund over 10 years could be more than $10,000 better off than the average fund, all other things being equal,” he said.

“Fees for KiwiSaver funds are already way too high, and managed investment schemes are even worse. Some are just outrageous, reflecting old ways of managing money and sales tactics which belong in the last century,” he said.

“For too long fund managers have taken too much of a slice and advisers too little.”

He said advisers could hold Simplicity up as an example when talking to other managers.

“They could go to their existing suppliers and say ‘what are you charging more than this for, this is what it can be provided for’. It will be a useful low benchmark and a useful product for clients.”

Simplicity will not take direct investments from non-individuals, so any trusts or companies that want to invest will need to do so through an adviser via a wrap platform.

He said there could be interest from the small institutional market. “It’s very adviser-friendly. Advisers who want to get a really low-cost manager and add their advice on top – because that’s what they are experts at – will find it easier. And the number is less eye-watering for the client.

“The problem advisers have had is that managers have been taking too much of the fee but this is starting to change that.”

Stubbs said it was possible to offer low fees because Simplicity did not pay trail commissions or run an expensive head office.  He said the breakeven for Simplicity’s KiwiSaver was between $300m and $500m FUM.

Stubbs said one in five of Simplicity’s KiwiSaver members had asked for an option that allowed them to withdraw money at any time.

The minimum investment will be $10,000 and the funds open for deposits on April 3.