KiwiSaver

[UPDATED] A financial adviser is taking a key role in Forsyth Barr scheme and says there is now a commercial incentive for other AFAs to get involved with KiwiSaver.

Martin Hawes is chairman of the investment committee for Summer KiwiSaver. It is a relaunch of the existing Forsyth Barr KiwiSaver product, but Hawes said it was more than a rebrand and includes new technology to help make it easier for people to manage their own asset allocation decisions.

He said many advisers would soon realise there was more of a role for them to play with the superannuation savings scheme.

While it used to be that advisers would only earn pocket change if they were being paid as a percentage of FUM, he said balances were now growing to the point that there was a good opportunity..

“As an AFA, I’ve seen people with north of half a million dollars in their KiwiSaver accounts. It’s unusual but there are people with big balances. There is starting to be a commercial incentive for advisers to wake up to KiwiSaver.”

He said while people had been disengaged and not sought financial advice, they were now amassing enough money that they would start to look more seriously at what they were doing with it.

Hawes will lead communications with the scheme’s members. Forsyth Barr’s funds management team will handle day-to- day investment management. “One of the things we will try to do is make it advice-rich. We’re going to be communicating with members a lot and we’re hoping that’s a selling point but I think it’s a necessity,” he said.

Hawes said his move into KiwiSaver was a natural extension of his mission to reach as many New Zealanders as possible with the message that the small decisions you make today can have a massive impact on your lifestyle in retirement. The scheme was named Summer in reference to Hawes’ 2006 retirement planning bestseller 20 Good Summers – and to acknowledge that retirement can be the best years of your life if your finances are well organised.

Summer KiwiSaver members will have the opportunity to learn about investing from Hawes’ regular communication with them. They’ll also have the chance to put that into action by deciding the weighting of their investment allocated to different investment classes.

“With Summer, you can get involved as much or as little as you choose. We offer the Investment Selection option for members who would rather let us make the decisions for them and keep them informed along the way. Those who like to be more involved can allocate their investment across different funds that invest in cash and domestic and global fixed interest and shares, depending on how they read the market at any given time.”

Hawes said he hoped the information members picked up as a result of their engagement with Summer would help them make other investment decisions. “That’s one of my goals, that summer KiwiSaver members get good financial and investment education they can use in other things.”

 

New low-fee KiwiSaver provider Simplicity has started accepting enrolments.

“The platform has been thoroughly tested, and has passed with flying colours. It’s now fully functioning, industrial strength and ready to make Kiwis richer in retirement,” said managing director Sam Stubbs.

He said customer demand had been strong.

“We’ve already reached our 12 month targets. Thousands have registered interest, and we are now making Simplicity fully available to them’,” he said.

Simplicity has been appointed by power company Genesis Energy as a preferred supplier, and is being recommended by two financial provider networks.

Simplicity is also a finalist in the NZ Innovation Awards.

“We are delighted to have been recognised for our 100% online, lowest cost, nonprofit model, which could make the average KiwiSaver $65,000 richer in retirement. See our website for the calculations and assumptions,” Stubbs said.

Flows of KiwiSaver money into New Zealand equities are putting pressure on the market and could make it hard for managers to cash out if they want to, it has been claimed.

Sam Faulkner, of Russell Investments, has written a report looking at the rapid growth of KiwiSaver assets and their effect on the New Zealand equity market.

KiwiSaver assets have grown from $1.2 billion in 2008 to $35.6b this year and it is expected to continue to grow rapidly.

Faulkner said the value of New Zealand listed equities within KiwiSaver had mirrored the growth of total KiwiSaver assets but the market capitalization of the NZX50 had not.

He said Russell estimated there was that there was about $10b of institutional actively managed capacity in the New Zealand market, and AUM was at $9b.

“We estimate that the average New Zealand equity manager believes it can successfully manage around 1.7% of the total market. Some already manage well in excess of this proportion,” he said.

“There could be some pinch point in terms of capacity over the next two, three or four years.”

If New Zealand were to follow Australia’s lead, the trend would only increase and the issues would get bigger, he said.

That capitalization squeeze could be countered with more listings on the NZX, providers dialing back their allocation to New Zealand equities, or more passive investment.  “Our experience has been that these things aren’t happening,” Faulkner said.

Russell managing director Alister van der Maas said the home bias was prevalent around the world. but in other countries there was not so much of a capacity and liquidity issue because of the size of the market.,

“The challenge is when there’s a market event of some form that causes asset allocation changes en masse, if they no longer want growth assets and want income, what can you do about that if you are at capacity and there is no liquidity in the market?”

He said that was one of the risks fund managers would have to consider but it was not accurately reflected in the new risk indicators, which provide a rating based on historic performance.

Faulkner said a small-cap manager would have to invest contributions into less-frequently-traded stocks and with a low level of liquidity this could move the price of the stock.

Most New Zealanders are clueless about KiwiSaver fees and not much better informed about their funds’ performance, a new survey has shown.

The survey was released by the Commission for Financial Capability and the Financial Markets Authority.

It found fewer than half of the respondents knew even roughly what they were paying in fees and two-thirds said they would expect to continue to pay the same if their account balances increased.

When prompted to think about it, just over half agreed that fees and returns were equally important in reaching their retirement goals.

The FMA’s director of external communications and investor capability Paul Gregory said: “It’s good to see people recognise that, now we want them to do something about it. The reason for doing this survey was to prompt them to think about two of the most important factors in their KiwiSaver scheme – the fund they are in and how it performs, and the fees they are paying for those returns.”

CFFC group manager of investor education David Boyle said: “Most of us are pretty careful about other kinds of fees – you wouldn’t take on a real estate agent without finding out what it was going to cost you. Nor would you pay someone $60 to mow your lawns if you could get it done for $40 – unless they trimmed your hedges too. So why pay KiwiSaver fees without knowing how much they are and what you are receiving over and above the cost of managing your money?”

Only half of respondents knew how their fund had performed this year, and only a third knew how it had done over the past five years.

Most expected solid returns over the next 12 months – more than half of those in a conservative fund expected up to 4% return and 8% of those in a growth fund expected more than 10%.

Almost 90% said they knew how much was in their KiwiSaver account, to the nearest $5000.