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Advisers missing KiwiSaver opportunity

Advisers have an opportunity to encourage people to use their KiwiSaver statements to work out whether they are on track for retirement, although few of them seem to be taking it, the Financial Markets Authority says.

Wednesday, July 6th 2016, 11:00AM 6 Comments

by Susan Edmunds

It has released the results of a new survey, which showed 21% of KiwiSaver members had read their provider’s annual statement thoroughly. Another 58% had looked briefly at it.
Only 23% had looked to see whether they were on track to achieve the outcome they wanted.

Paul Gregory, FMA director of external communications and investor capability, said that the annual statement should be an important trigger for members to think about what they were saving and investing for. “When this arrives through your letterbox, or in your email, it’s a great opportunity to check in with your goals. And, if you’re not happy, to check in with your KiwiSaver provider.”

People should consider the income they wanted in retirement, and the amount they would need to save to get there, whether they were on track and, if not, what they could do about it.

Of those who checked to see if they were on track, only 15% said they had talked to a financial adviser, compared to 43% who had used an online calculator.

Gregory said advisers could use the annual statements as an opportunity to engage clients and make sure they had a plan.

He said there was room for improvement in the statements from providers.

Almost three-quarters of respondents said they wanted to see information about the lump sum they were on track to get, 62% wanted to see what level of income that sum would deliver and 37% said they wanted to see their fees represented as a dollar amount. At the moment, providers often only give details of the administration fee, not the management component.

Gregory said that was something advisers could encourage their clients to ask their providers for.

The Ministry of Business Innovation and Employment is currently working with the FMA and the Commission for Financial Capability to review the format and content of the KiwiSaver annual statement to consider ways to improve the information provided. The results of the FMA survey will be taken into account.

Respondents said high fees (43%), a fund losing money (36%) and another provider achieving better returns (36%) were the things that were most likely to prompt them to change their KiwiSaver provider. Only 11% said they would switch because another provider asked them to join their scheme.

Tags: financial advisers KiwiSaver

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Comments from our readers

On 6 July 2016 at 1:28 pm Brent Sheather said:
It really is quite ridiculous to expect most advisers to give independent advice on KiwiSaver given that most of the KiwiSaver market is in the hands of the banks. Can you imagine how long Joe Blogs at ANZ would last in his or her job if they told their clients that they were paying too much in fees or their fund was underperforming and therefore would not meet their investment goals. Ridiculous and naïve to think otherwise.

This also raises another fundamental problem with KiwiSaver and that is, in sharp variance with best practice and the US version of KiwiSaver, most KiwiSavers funds are with one fund manager. The US system and best practice advocates investing with multiple fund managers thereby allowing advisers to differentiate and investors to reduce risk. The architects of KiwiSaver were either compromised, ignorant or both.
On 7 July 2016 at 12:02 pm AFA Muggins said:
Actually Brent, if you sift through history, and look at the original working party members, there were vested interests, so you could be right with 'compromised'.
On 7 July 2016 at 2:09 pm R1 said:
Given the persistently high fees the KiwiSaver funds retain (regardless of their growing scale) and the consequentially lower returns Kiwis receive, I think they should be rebranded KiwiSlaver funds. We must all work longer to save enough for our retirement due to these high fees; KiwiSlaver fund & bank managers excepted.
On 7 July 2016 at 3:29 pm Craig Simpson said:
Brent, are you advocating that KiwiSaver should be opened up so you can mix and match funds from different KiwiSaver schemes and effectively design your own asset allocation and strategy.

On your second point - does your comment hold if the manager engages sub managers which is the case for a majority of KiwiSaver funds - you are in effect getting exposure to multiple managers which as you rightly point out is best practice
On 8 July 2016 at 9:11 am Brent Sheather said:
Hi Craig

No I’m not necessarily advocating that KiwiSavers should be able to design their own asset allocation and strategy – I’m sure we need to keep things as simple as possible for most people. I just looked at some comment on the 401Ks in America and they apparently allow investors to save via various fund managers including an index option. The conversation I saw was where some people were considering a class action against a large organisation (not a fund manager) for offering their employees poor performing/high cost fund managers in their 401K. The thrust of the argument was that people are stupid and we shouldn’t allow them to make dumb decisions – light years from the prevailing mentality locally which is “to disclose that we are going to rip you off so you can’t complain when we do”.

In addition they thought that the default option should be 50% indexed. Imagine what that would do to our passive fund industry – you would have all the dodgy characters locally offering passive but probably with some sort of unfair performance fee! It is a huge indictment of the local industry that we only have one passive provider. One would need powerful drugs to reconcile that with the fact that fund managers are apparently putting client’s interest first.

On your last point some managers offer sub managers but from my reading that is mainly in global bonds and global equities.
On 8 July 2016 at 10:00 am Craig Simpson said:
Hi Brent, you are correct in your observations around the manager diversification in global bond and equities although the Russell fund under the AON banner are using Harbour and Devon for NZ equity and Harbour for NZ Fixed interest.

My observations around default providers is there is a growing presence of passive international equities which is probably to keep the fees lower - Vanguard funds are commonly stated amongst the top 10 holdings in defaults.

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