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C & D

KiwiSaver Investors Switching Providers

We were rather surprised to read a report from Massey University director of financial planning, Dr Claire Matthews that indicates that many KiwiSaver investors are choosing to transfer out of or between KiwiSaver schemes being run by the country’s five major banks.

The banks collectively had 28,139 members transfer out of their KiwiSaver funds in the year ended 31 March 2012. That represented close to 60% of the 48,000 people that transferred into the banks’ KiwiSaver schemes in the same period.

In another survey conducted for the Financial Services Institute of Australasia (FINSIA), KiwiSaver members said they preferred to have their KiwiSaver account with a bank so they could see their balance via online banking. Our experience is that this is the selling point that the banks use when they are trying to encourage people to swap to their schemes.

The reality is that most schemes have the ability for members to see their account balances online. The subtle difference is that for non-bank KiwiSaver members, that they must make a conscious decision to check their KiwiSaver balance, rather than automatically seeing it every time they log on for internet banking. Given that KiwiSaver is a long term investment savings scheme; there is little point in regularly checking to see the balance of your account.

The high turnover amongst the banks’ KiwiSaver members could be a result of members constantly monitoring their account and their funds’ performance, and choosing to move when the performance is poor. As it can take several weeks for a transfer to be completed and for IRD to direct the investor and employer contributions to the new scheme, it is not possible to time the market when making a change to a new provider. The chances are investors may be changing from say one balanced fund to another, with similar asset allocation benchmarks. As asset allocation is a fundamental component of investment performance, there could be very little difference in returns between providers who have a similar management style.

We have heard from a major KiwiSaver administrator that there appears to be adviser driven KiwiSaver switches, especially to providers that have an insurance arm. Their conclusion is that these advisers are being incentivised to make the switches.

It is our view that all switching of KiwiSaver schemes needs to be signed off by an Authorised Financial Adviser. The adviser should provide written advice as to why they are recommending a switch. The switch signoff could then be audited by the FMA as part of their overall adviser monitoring program.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.