What's driving adviser-led KiwiSaver switches?
KiwiSaver members working with advisers seem less likely to chase past returns, but it’s not clear what is driving their investment decisions.
That is according to Simplicity chief economist Shamubeel Eaqub, who has been analysing data from the Disclose register.
He said, overall, members tended to move into the top-ranking funds from the year before in large numbers, but that performance often did not continue.
There was 4.6 percent growth in members in last year’s top-quartile funds compared to a fall of 0.09% for those at the bottom, but there was only a 55% chance a top-quartile fund stayed in the top half the next year.
Eaqub said funds that worked with advisers had generally benefited from more of the flow of new members.
There was a small bias towards past performance but not as large as the rest of the market.
“What’s really fascinating is these adviser-led allocations don’t seem to have any kind of connection to returns or fees or anything like that.”
He said it raised questions about what incentives were encouraging adviser decisions.
“Adviser should be thinking about [a member's] circumstances and finding the right kind of fund that’s suited to [their] risk appetite and time horizon. Whether or not that’s happening, that’s not clear from the data.”
He said a lot of advice around KiwiSaver would be automated over the coming years because there was a lot more data and evidence available more widely.
“In the past a lot of this information was really hard to access and to understand. A lot of that is going to be automated with the financial advice industry and I think that’s a good thing because no one adviser can sit there and really think about all this plethora of data sources and attributes. So they can focus a lot more on the relationship, on understanding people’s perspectives.”
He said he was not intending to criticise financial advisers.
“It’s more just saying have we got the right settings? I always send anybody who comes to me to an independent financial adviser who’s paid by the client rather than paid by the providers because I think that independence is really crucial to make sure you’re getting the right service or right product for you.
"We know that as soon as there is that financial incentive, you may not get what’s best for you,” he says.
