What I'm seeing at the moment

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Instead of a Weekly Wrap I thought I'd provide a few observations on what I am seeing in these rather unusual times.

Wednesday, July 8th 2020, 6:56AM 2 Comments

by Philip Macalister

Giving KiwiSaver advice at the right time

Last week we held the ASSET Magazine KiwiSaver Roundtable (this will be fully published in a couple of weeks' time). One of the surprises was around switching. There is some (unpublished) research which suggests that of the 40,000 members who switched $1.4 billion from growth to conservative funds they would have suffered a combined loss of $160 million.

Assuming those members should be in a growth fund for the long term, they also risk losing another $28 million each year for every year they don’t switch back. That’s an initial average loss of around $4,000 per member and an ongoing average opportunity ‘cost’ of another $700 annually.

When the question posed was whether members can just switch, no questions asked or whether there should be some intervention like a phone call from the provider or even some questions online to ensure sensible decisions were being made.

The majority of our panel said if a member wants to switch then they should be able to without any ‘intervention’.

This seems counter to what's been happening in the market. Up until now one of the biggest challenges has been getting members out of default funds and into one appropriate for their risk tolerance. This requires intervention and advice. The other anomaly is that although there is general agreement about the value of advice, but in a situation like Covid-19 where markets tumble and investors are likely to make "emotional" decisions, there is no requirement for advice.

Is FSLAA the wrong move?

It's also been interesting watching what is happening to financial advice across the Tasman in Australia.

New Zealand is moving closer towards the Australian model with our new FAP structure. However, the Financial Planning Association of Australia is proposing a move to individual registration of advisers - exactly what New Zealand has now and is about to ditch.

The FPA is increasingly saying its members are increasingly demanding to be freed from the shackles of their licensees.

“For a long time the feedback from members has been that while they get a lot of help and support from their licensees, they would prefer to be more in control and responsible for the advice they provide and how they provide it to their clients,” FPA head of policy and standards Ben Marshan is reported as saying.

He says dealer groups could still provide important wholesale services to advisers, including bulk purchasing of PI insurance.

Back here in New Zealand Covid-19 must have been a massive relief to some dealer groups.  Although there has been plenty of time to prepare for changes some groups would have struggled to meet the original deadline for licensing. Now it has been pushed back they have time to get their new models in place. 

Life insurance leadership reshuffle

In some ways it was no surprise that Nadine Tereora is due to turn up at Partners Life at the start of next year. Her departure from Fidelity Life was very unusual and quick which indicated there was more to the move than what was reported.

Her move will allow Partners founder and managing director Naomi Ballantyne to focus on growing the business and provides a clear succession strategy. That's good business planning. 

It was also a surprise to see Asteron Life boss Paul Smeaton return to Australia. Two significant leadership changes in the space of days is reasonably unusual. We will be watching with interest to see who takes up the reigns at Fidelity and Asteron. One has to wonder if the shareholders at Fidelity Life will pull the business into another New Zealand-owned financial services they also have a stake in - Kiwibank.

Tags: Opinion

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