Banks too dominant in KiwiSaver: Survey

New Zealand’s investment management industry is worried about the influence and domination of the big banks on KiwiSaver, a new survey has shown.

Thursday, August 4th 2016, 5:59AM

by Susan Edmunds

Doug Cameron

BNP Paribas Securities Services has released the result of research undertaken with local superannuation funds, KiwiSaver providers, asset managers and financial adviser groups.

New Zealand head Doug Cameron said the retirement savings scheme had been transformative.

Before KiwiSaver launched, the funds management industry had been in the doldrums, with a stagnant employer and retail superannuation industry and the non-super retail unit trust market in serious decline, he said.

“Just nine years later that state of affairs has been reversed: KiwiSaver and the wider retail unit trust markets collectively manage over $60 billion – at the moment split fairly evenly between the two,” he said.

“While the $20 billion-plus employer super industry will undoubtedly shrink following a regulatory overhaul, it won’t disappear completely. The wholesale market is sustained by a vibrant charity and community trust sector and, increasingly, Maori investment funds.”

He said the market was in good health and poised for growth.

But despite its successes, Cameron said there were still structural issues with the KiwiSaver market that respondents wanted to see addressed.

Participants expressed concern about the domination by banks (27%) and local access to advice (20%), coupled with conservative investment choices (19%). They said compliance made it hard to obtain cost-effective advice, and members were sometimes “churned” between banks without enough education.

Some respondents said the market was too small to support all the providers and some would end up having to merge. More than 20% expected to see more consolidation of KiwiSaver over the next 12 months.

But meeting regulatory change was seen as the biggest trend for the next year by the majority of respondents. They said they expected to see more confusion among investors, homogenisation of financial advice and portfolios, pressure to reduce fees and increasing costs with no direct added value.

Keeping up with new regulations while complying with existing rules, along with reporting to regulators, were the top worries for respondents, with over a third (35%) of those surveyed ranking these factors as most likely to keep them awake at night. Respondents cited Financial Markets Conduct Act compliance as one such regulatory burden.

But Cameron said the survey found the FMCA also provided some positive contributions, such as improved processes, raising industry standards, and improved disclosure via greater simplicity and consistency.

The respondents expected global equities to be the best-performing asset class over the coming year.

Tags: funds management KiwiSaver