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Advisers stepping in where Govt scheme lacking

Financial advisers are stepping in while the Government 'does nothing' to ensure KiwiSaver works for New Zealanders, one market commentator says.

Friday, February 8th 2019, 6:00AM 4 Comments

The recent Morningstar KiwiSaver report showed some of the schemes that deal most commonly with financial advisers were lagging behind industry average returns.

In the year to December, default KiwiSaver funds returned an average 1.5%, conservative 1.3%,  and moderate funds 0.4%. Balanced funds were down an average 1.3%, growth down 2.1% on average and aggressive down 4.1% on average.

OneAnswer funds struggled to meet that return – the conservative fund was up only 0.5% in the year, conservative balanced down 0.7%, balanced down 1.9% growth fund down 4.4%.

AMP’s LS aggressive fund was down 4.2% for the year.  NZ Funds’ growth fund was down 8.3% and Booster’s geared growth fund was down 5.9%.

Chris Douglas, principal at MyFiduciary, said even if adviser-distributed funds were not topping the tables, their clients should end up better off.

“Look at the where the money is invested for the adviser-distributed options and there tends to be a great allocation in balanced- and growth-oriented KiwiSaver schemes, where a large portion of those who are not using an adviser are in the default options earning a very meagre return. As a result, the average investor who has used an adviser would have done materially better than the average investor who hasn't,” he said.

The risk profile of their KiwiSaver was one of the most important decisions an investor could make, he said.

“Advisers have tended to place their clients in the higher risk options which have performed materially better than those in conservative options, as they should over the long-term.

“I think that many advisers are playing an important role in KiwiSaver. As a result of the poorly structured default process, many investors are far too conservatively invested - especially those with 15-20 years till retirement. They are really missing out and should be invested into a balanced or growth scheme, which is where they will get the best potential returns from. So, you could also say that advisers appear to be doing a very important job by ensuring that clients are appropriately, given the government is doing nothing. “

Tags: KiwiSaver

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Comments from our readers

On 8 February 2019 at 3:36 pm MPT Heretic said:
Unfortunately that 'poorly structured default process' has robbed thousands of kiwi investors of real returns. If the FMA wants to have a crack at anyone for shoddy advice they should look at the govt officials who decided it was a great idea to force default providers to channel unsuspecting and unadvised clients into cash during one of the longest market bull runs in history. Seemingly for no other reason than they didn't want frightened investors if markets fell and hoped no one would notice because account values were still being boosted by govt and employers tipping more funds into the pot.
On 9 February 2019 at 11:49 am Denis said:
@MPTHeretic - Getting a bit carried away, aren't we? The default funds have delivered a safe place for people's money. If the customers want to invest in more growth assets - they are completely free to do so, with or without advice. Default KiwiSaver members have not given their permission to fund managers or advisers to gamble with their savings. As it is, about 20% is invested in growth assets.

We have been fortunate not to see a huge downturn in markets in the last 10 years.

Governments of either stripe do not want to have to justify plunging KS balances to people. Those that want to take a risk, can. Those that don't want to take a risk can stay where they are until they feel ready.

If the higher asset allocation to growth is such a sure thing...why don't fund managers and advisers guarantee their KS balances to be at least equal to the default setting? They don't because there's a risk they will lose their shirt. Put your money where your mouth is.

On 11 February 2019 at 3:42 pm MPT Heretic said:
Denis I agree that investors have a choice and some may well be very happy with low risk. Riskier assets are exactly that. But the point is the default scheme system is based on the premise that when members don't make an active choice they fall into the conservative default bucket regardless. Last count there was 431,000 default members, 75% who are under 50 yrs old. My personal opinion is there would be substantially fewer if an advice process was a mandated part of the KiwiSaver set-up. Advisers have to consider suitability, the Govt it seems has no such obligation and default members have borne the cost.
On 13 February 2019 at 11:40 am Michael Gray said:
I would have thought having target date / life stages funds suggesting a 100% Cash allocation for a 65 year is just as big an issue as the conservative nature of a Default Kiwisaver Fund, arguably a bigger issue and risk for someone entering retirement. There is a key role for Advisers here as well.

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