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KiwiSaver switching soars

The rate of KiwiSaver investors moving between funds has increased by "thousands of per cent", Trustees Executors chief executive Ryan Bessemer says.

Thursday, March 26th 2020, 6:45AM 3 Comments

Ryan Bessemer

Trustees Executors provides registry services for about 25% of all KiwiSaver money.

But Bessemer said, in recent weeks, the rate of people switching between funds had increased at a rapid pace.

"For example, we might do an average of say, 30 to 50 switches a day, but at the moment we are doing thousands. Imagine the type of impact that has on the market."

Many investors have been spooked by seeing their balances fall by 15% or more since Covid-19 started shaking the markets, after years of strong returns.

"That sell off of growth funds is turning over thousands of securities every day, just through people switching. That is where advisers need to be going out to clients and saying KiwiSaver is not a short-term thing. They need to be thinking about what their long-term prospects are.

"Changing from growth to conservative crystallises losses. That is going to have a flow-on effect to future performance.

"We need to access cheaper ways of getting financial advice and literacy online ... look at the market going into a crisis, already people are talking about what they are currently invested in – it could be growth investors switching back to a conservative option. They're doing that without seeking the appropriate financial advice for their own needs. There should be better tools built around that sort of thing."

Economists say those investors may still have worse to navigate in coming months, but the action of governments around the world should eventually boost markets.

Westpac chief economist Dominick Stephens said Covid-19 would create a deep recession, including a drop of 3.1% in GDP compared to 2.7% in the GFC, but it should be briefer as long as the banks and Government stayed in good shape.

He said it was likely that the Reserve Bank would start quantitative easing this week.

ASB economist Jane Turner agreed quantitative easing might be needed "with some urgency" given a sharp increase in global government bond yields over the past week.

Tags: coronavirus Covid-19 KiwiSaver

« Advice businesses under pressure 'on two fronts'Regulation slowing: Is FSLAA next? »

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Comments from our readers

On 27 March 2020 at 8:15 am Pragmatic said:
On a related note; perhaps the FMA could review the status of this so called financial expert and the Kiwisaver advice that he is dispensing via the media:
I can’t find the author’s name on the FSPR, & question the broadcast advice in his article, that clearly contributes to the observations of TE. Now is not the time to change KiwiSaver options without obtaining relevant advice... just saying.
On 27 March 2020 at 11:22 am Murray Weatherston said:
Wouldn't he be exempt from the Financial Advisers Act as a "journalist, or State services employee providing a relevant service in the course of that occupation"?
I think he is the Sorted content manager or some such title.
On 28 March 2020 at 12:56 pm Denis said:
The conservative default asset allocation is the right place for people that have not (or will not) think about where their KS money should be invested. Keep it safe until they're ready. They're still doing OK with the employer contributions and the MTCs.

I suspect the alarm is coming from people who have been convinced - perhaps several years ago - to invest their KiwiSaver in growth assets and now they're seeing their balances go down. Now is the time for those providers to reassure those people that they are still in the right place, no matter how bad it all seems now.

Everyone who took a risk with their KS fund selections did so after a full attitude to risk exercise, which was part of the switch process and this is on their file...right?

If providers and advisers run for the hills and stop promoting growth KS funds all of a sudden - aren't they displaying the same behaviour as those accused of not being financially literate?

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