1 Comment 1 Commentby Matthew Martin
David Boyle.
Good Returns has put together a comprehensive guide to the new default funds (click here) and spoke to industry commentator and head of sales and marketing at Mint Asset Management David Boyle about the challenges the new providers will face and what he'd like to see happen after the dust settles.
With a focus on lower fees and more balanced funds, the Government dropped the number of default fund providers from nine to six.
Out went some major players - AMP, ANZ (currently the largest provider), ASB (the second-largest provider), Mercer and Fisher Funds.
In came Simplicity and NZX's Smartshares who joined the remaining default fund providers Booster, Westpac's BT Funds Management, the BNZ and Kiwibank's Kiwi Wealth.
As of September 30, there was $90.8 billion of KiwiSaver funds under management and it's now up to the Inland Revenue Department to collect the details of the more than 230,000 default members from their old providers and pass them to their new ones.
The old providers now have 75 days to sell off their investments and transfer those funds to their new managers.
Boyle says the key to this process will be the quality of the information passed onto the new default providers and how they will connect with their new members.
"These would be employed people and their employers will have that information - there may be some privacy issues - but the accuracy of that information is very important - do you have the right email address, postal address, or phone number?"
Boyle says the default providers have a duty to connect with these people saying he can't accept the idea that some people just don't want to be contacted, "...it's their money and surely they want to know what's going on with it".
"In my ANZ days, we spent a truckload of money trying to find default members contact details. Maybe Inland revenue can do this for them and there are ways to do this but it will need some creativity."
Boyle says given the numbers being transferred it will be a real challenge to meet some of the default provider commitments so getting the right data is very important.
"It seems some providers say they will do this very quickly, but they will need to cash them up so the members don't fall out of the market.
"There will also be a lot of investment movement and there have to be some market fluctuations - especially in the bond market - and I can only assume that over the next few weeks there will be more happening in this area."
Boyle says it doesn't appear that every fund manager is following the same process and there will be a lot of money sloshing around that needs to be reinvested quickly.
"It's great the fees are a lot lower, but what sort of service are they going to get with 30 to 40,000 new accounts being onboarded?
"Moving en-mass could cause market challenges and there are costs associated with this flow-on effect.
"Members connected to the default providers are going to see a far greater level of market fluctuation in their balance - they may get more connected if they see their balances going down - especially if they haven't seen that happen before."
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Catastrophizing for a headline is just old and boring. Marketing people should stick to their colouring in pencils.
IR has the most up to date data base in the country for contacts and if they wont share them then MBIE, FMA and IR should provide their own fund, after all there are a few spare default funds available for the right price.