KiwiSaver supermarkets – real competition for corner dairy schemes

With two new platform-based schemes due for launch, David Boyle, Mint Asset Management Head of Sales and Marketing, says KiwiSaver will finally enter the supermarket era – giving members the wider range of choice they deserve.

Thursday, October 8th 2020, 9:00AM

by Mint Asset Management

Love it or hate it, KiwiSaver has grown through some challenging times and suffered some unusual parenting along the way.

Finally, it might have reached an age where it can break free of its troubled childhood, allowing it to grow into a savings solution that will fit the needs and tastes of the next generation and beyond.

The PG version of KiwiSaver might just have had its day.

Ever since KiwiSaver’s birth and delivery by Sir Michael Cullen, on the eve of the financial crisis in 2007, the scheme has lived through some pretty tough formative years: from grandparents pontificating “we don’t need KiwiSaver because New Zealand doesn’t have a savings problem”, to successive governments first supplying a range of shiny toys, only to take many of them away later on.

In some ways, KiwiSaver has grown up against the odds with more than three million investors and $62 billion in retirement savings looked after by a wide range of caregivers, namely providers like banks and fund managers.

The majority of providers have built their own KiwiSaver scheme, used their own funds, and offered a limited range of investment choices. Knowing that members could only be with one KiwiSaver provider at a time meant they didn’t have to offer other investment options.

However, all this is about to change with the introduction of two new KiwiSaver schemes launching soon.

Unlike most current schemes, the new KiwiSaver arrivals are platform providers not fund managers.

Essentially, this means the new-breed schemes have the ability to provide access to a wide range of investment funds and managers – think of them as supermarkets that have different items of stock (the funds) with an array of brands (the investment managers) all under one roof.

Online retail platform, InvestNow, will be the first to cut the ribbon on its KiwiSaver “supermarket” with a DIY approach for those Kiwis who like to choose their own path; and not far behind, Consilium – a platform provider for financial advisers – will open its doors for investors wanting to seek advice before switching schemes.

While the two schemes are at different ends of the spectrum, both are growing businesses and both are keen to disrupt the KiwiSaver industry.

Here’s why I think this is an exciting addition to the KiwiSaver shopping basket

In the past, new KiwiSaver members have either been allocated to a small number of approved default KiwiSaver schemes, with many members still stuck in very conservative funds, or have actively chosen a brand they knew or have been sold. They generally offer, three to five diversified funds, most of which are managed by the provider directly or indirectly.

I should know, as I was part of the land grab at the start with a particularly large blue product provider that grew significantly during the first 10 years.

Each KiwiSaver provider had their own specific brand, distribution channels and catch lines.

Some offered active management with the promise of better returns, others offered lower management fees by providing passive funds, and some, more recently, are more environmentally focused.

Those with the biggest distribution channels and footprints (many of which were the original default providers) got the lion’s share of new KiwiSaver investors and that trend continued for some time, up until the last couple of years.

With the land grab of new investors all but over, we are starting to see providers concentrate on current KiwiSaver members, enticing them to move across to their scheme with some extensive advertising campaigns, lower fees, along with other novel approaches. Which is why this could be good news for members and not so good news for some providers rushing to win the KiwiSaver race.

I should know, as I was part of the land grab at the start with a particularly large blue product provider that grew significantly during the first 10 years.

Think of it more like the old children’s tale The Hare and the Tortoise. The tortoise could be the real winner in the KiwiSaver marathon providers will run over the next 10 years.

The tortoise is certainly picking up pace, driven by KiwiSaver members who are getting older, more savvy or simply looking for something that fits their current circumstances.

As balances have grown, the divergence of returns is prompting KiwiSaver members to see what else is on offer, rather than sticking to the traditional meat-and-three-veg.

But don’t take my word for it. This has recently been highlighted in the latest FMA KiwiSaver Annual Report 2020.

It highlights, in part, not only the market volatility impact on investors over the Covid-19 period, but how some of the older more traditional players are starting to lose their shine (and customers) and this is where these two new platforms that I have mentioned might contribute to the growing trend.

Instead of being provided a set menu from McDonald’s – and having the option to add fries or coke – these platforms will allow you to pick from a very large range of different appetising cuisines, providing a larger number of choices that suit even the most sensitive palate.

The platform-based KiwiSaver schemes will allow financial advisers and DIY investors to pick say their roast leg of lamb ... but, as Manu Feildel from My Kitchen Rules would say “where’s the sauce?”. Well, the wider platform menu will enable KiwiSaver investors to add Mint on the side, for example, or any other preferred condiment to enhance the overall outcome.

These new offerings won’t be to everyone’s taste, but they will be attractive to some, especially those with larger balances and wanting greater diversification, not just of assets but also fund manager styles – much like wholesale investors enjoy today.

Mint Asset Management is an independent investment management business based in Auckland, New Zealand. Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement at mintasset.co.nz

Tags: David Boyle investment KiwiSaver Mint Asset Management