The FMA has reported on its work with Kiwi Wealth, which was designed to determine whether behavioural prompts increased the number of active fund choices members made.
New Zealand’s nine default KiwiSaver providers each have an obligation to help their members make an active choice about the best type of fund to suit their savings goals.
The FMA's KiwiSaver report in 2016 reported on the success of these efforts. It showed most default KiwiSaver members were not choosing their own fund.
While one provider achieved 22% of members making a fund choice, the others ranged from 1% to 8%. Most providers were clustered around 3% to 4%. "We want this number to increase and believe providers can do more to encourage their members," the FMA said.
As part of the research project, Kiwi Wealth’s “welcome” communication was amended to make it easy to follow, with prompts and links in the email version, attractive and timely.
In total, 3427 new default KiwiSaver members received the welcome communication.
Members were randomly assigned so that half received the original communication (the control) and half the revised communication (the treatment). Members who had an email address received the communication by email. The others received it by letter.
The probability of those who received the reviewed communication making an active choice was 47% higher than those who received the control.
Results from the full model analysis show people who received the treatment communication were more likely to choose their own fund than those in the control group regardless of whether an email or letter was issued. Overall, however, people who received a treatment email were more likely to choose their own fund than the treatment group who received letters, FMA said.
The Kiwi Wealth team will continue using the treatment communication for all new default members because of the success they experienced.
They are now reviewing all of their existing communications to identify opportunities where using this approach could add value. "We would like other KiwiSaver providers to make similar changes to their communications. The approach can be adopted across any member communications and the changes are quick and low cost," FMA said.
"Providers who currently call members tell us that up to half of the people they reach end up choosing their own fund. However, many providers are not resourced to do this and often they do not have up-to-date contact details. We are keen to explore other more cost-effective ways of following up with members."
Paul Gregory, FMA director of capability said, “The FMA encourages both KiwiSaver and Managed Investment Scheme providers to use these results. Making similarly simple and effective changes can help investors make better decisions. While the number of people switching in the trial is small, the result is statistically significant and could have a bigger impact if more broadly adopted.”
Joe Bishop, Kiwi Wealth general manager customer, product and innovation, said the onus was on providers to better help KiwiSavers in default funds to actively choose investment options that best suited their needs.
“It’s that first contact that’s the key. By keeping things easy and understandable, we’re able to help members become more than simple savers – they become investors who are planning for, and maximising, their financial futures.”
A second trial using behavioural insights is currently under way with ANZ. The FMA is keen to work with other providers on similar projects.
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