Advice makes key difference to KiwiSaver

Financial Markets Authority's latest report highlights importance of engagement with members - and their $450m fees bill.

Tuesday, October 9th 2018, 2:00PM

Even small amounts of advice are making the difference in getting KiwiSaver members into a suitable fund, Financial Markets Authority director of regulation Liam Mason says.

The FMA has today released its latest KiwiSaver report, showing total KiwiSaver assets rose by $7.8 billion to $48.6b in the year to March. Investment returns rose from $2.7b to $3.2b.

The number of members in default funds fell by 3% to 431,779. While people were still joining through the default mechanism, (64,220 this year), total default membership declined and was at its lowest level since 2011.

In the year, 28,603 default members made an active decision about the type of fund they wanted to be in, up from 16,902 a year earlier.

“Overall default providers have improved their efforts to help their members make active decisions about their investment fund type. We still think some providers could do more and we’ve engaged with firms where we considered they needed to improve," Mason said.

A government review of the settings for default providers will start next year and the FMA said it expected the performance of default providers in their engagement with members to be considered as part of this review.

Mason said it was interesting that when the FMA discussed with providers what was helping members to make an active choice, advice was a key component.

Providers that offered even simple advice about funds that might be suitable showed increased engagement, he said.

“There are still a number of providers reluctant to move into the advice space but since we changed our guidance on KiwiSaver advice we see more willing to give some simple assistance to people to help them, which is good.”

He said AFAs still told the FMA they were not offering significant amounts of KiwiSaver advice – probably because they could not make it pay.

“It’s still a real focus, how do we make sure it’s easy for people to get simple help. Often pretty basic help can go a long way.”

Roboadvice had a part to play in that, he said.

FEES RISE

The average investment management fee paid by members over the 2018 reporting year was $117, almost 20% more than a year ago.

During this reporting period, all schemes were charging fees based on a percentage of assets, so rising balances result in increased fees in dollar terms.

Thee was $415.2 million in total fees paid in the year by active members, and another $32.5m by those in default schemes.

There was no clear link between higher fees and higher returns, apart from a couple of standout funds, the FMA said.

Mason said more work would be done on fees. The FMA wanted to conduct more research to see how New Zealand compared internationally, he said. “We are going to be really interested in fees because they make such a difference to the overall outcome.”

KiwiSaver funds cannot have unreasonable fees but Mason said work was needed to assess how that standard might change over time.

Tags: FMA KiwiSaver