Twenty-six-year-old Cyma Parbhu says her generation doesn’t want KiwiSaver’s advice. You want the skills to effectively make KiwiSaver for yourself.
“Education before the council. If we are taught these skills beforehand, we can make these decisions for ourselves, “she says.” It’s more empowering than just being told what to do. “
Parbhu joined KiwiSaver while in college, when she worked part-time in the retail business. No advice was offered to her. It was just before the national government at the time removed the $ 1000 kickstart payment, so joining her was an interesting way to get a one-time big increase in her wealth.
“I just signed up through my bank,” he says.
She opted for a growth fund, but had only a vague idea of what KiwiSaver really was, and only later learned how the program worked and what her money was invested in.
Parbhu’s financial education has moved on, so much so that he founded the financial education company Spring and is working with Massey University’s FinEd Center to create a distance learning course that people can use to improve their wellbeing by improving their own economic life.
But many people haven’t made such strides, especially in the 20-30 age group, ASB’s survey data suggests.
This comes as no surprise to Pushpa Wood of Massey University’s FinEd Center, as her long-term study of how young people acquire financial skills indicates that many only begin to truly care about KiwiSaver when they start thinking about home ownership.
KiwiSaver was established as a mass-market savings program intended to help people save for retirement, says pension expert David Boyle of Mint Asset Management.
Traditional financial advice provided by a financial advisor was not part of the plan, although some people received advice, and some KiwiSaver schemes such as Booster, AMP, Generate, and Milford had close ties to the advisors.
But most schemes, including very large banking schemes, have provided “class” tools and advice to help people choose the right fund for them and understand how much they should contribute to get the retirement they were hoping for.
Research in 2019 by Te Ara Ahunga Ora The Pension Commission indicated that only 11% of KiwiSavers had chosen their fund after receiving advice from a financial advisor.
Some of this advice may come from individual employers, as there are still 16,539 employers who have employer-chosen schemes to recommend to their employees, the Revenue Agency said.
Parbhu wouldn’t have wanted much advice when she joined, but she would have liked an “extra step”, which didn’t take more than a few minutes.
There are other points in KiwiSaver’s career where programs could proactively provide the option of counseling or information and tools in a way that works.
Wood turned 65 two years ago and, although she is still working and investing, she is amazed that she hasn’t gotten a call to offer her advice and support.
“I have been waiting for two years for my bank to call me and ask me, ‘What are you going to do with your KiwiSaver?'” He says.
“There is a huge gap when people turn 65,” he says.
Wood would like to see every new KiwiSaver offered free government-funded advice.
He believes it would be a good investment and help people get more out of KiwiSaver, but he doesn’t expect that to happen.
The Financial Services Council (FSC), which is the industry lobbying association for KiwiSaver suppliers, surveyed 2,000 KiwiSavers in 2020 and concluded that balances were up to 52% higher for investors seeking advice.
The research did not say whether the incomes of those with consultants were higher than those who were not advised, but Joe Taylor, founder of the digital consultancy business Better Saver, says that financial advice has been the preserve of the higher income people. .
“Typically KiwiSavers have been excluded from financial advice because most financial advisors will only look after you if you have $ 500,000 or more to invest,” he says.
Where advice has been offered on KiwiSaver, they tend to be biased, Taylor says, with banks advising their own schemes and financial advisors closely tied by commission agreements to individual KiwiSaver suppliers.
Taylor aims to change that, with Better Saver offering KiwiSaver advice delivered by an algorithm to individuals, which includes not only their financial goals and risk tolerance, but also their ethical principles.
“We are trying to democratize the councils,” he says.
Research suggests that there is a gap in the demand for advice for KiwiSaver. In 2017, a survey by ANZ found that 16% were not interested in recommendations and were confirmed as do-it-yourselfers.
But the industry’s chosen way of providing advice through “sophisticated” online calculators was only favored by 13% or people, with a further 18% saying they wouldn’t mind that, if only there were humans to help them use them. and interpret the results.
The reason the advice can be effective is that it can help people overcome their internal human biases that go against their long-term interests, Boyle says, including undue risk aversion and panic when markets go down.
Most KiwiSavers, who do not choose a “stages of life” option, are actually advised to choose between cash, conservative, balanced and growth funds, sometimes with intermediate steps.
While working at ANZ, Boyle saw a clear pattern of people who had received investment advice doing better.
“We saw that the clients recommended by the advisors had greater asset allocation into growth assets,” he said.
This has prepared them for better long-term returns, he says.
It can also prevent people from choosing fundraising shortcuts that may not be in their best interest, such as chasing the best-performing fund from last year.
But while KiwiSaver has a great DIY element for savers, the planned creation of Sharesies-style DIY schemes, where people can raise money and stock for themselves to create their own wallets is not. emerged as a strong trend.
Taylor, who uses Sharesies himself, says he often sees requests for a DIY KiwiSaver scheme that allows people to build their own portfolios by investing in their favorite companies.
But only two KiwiSaver schemes are marketed as DIY schemes, and the latest one launched is having more success in selling to financial advisors for use with their clients.
InvestNow’s Mike Heath said his scheme allows investors to create their own portfolios by choosing a mix of funds, but said the scheme is attracting the majority of new clients via financial advisors.
The other is Craigs Investment Partners, which has invested over $ 400 million and allows savers to choose their portfolios from an approved list of just over 250 stocks and funds, far fewer options than those offered on Sharesies.
The average balance of savers in the program was over $ 90,000, and the vast majority of savers had Craigs advisers guiding their investment choices.
“Some clients choose to self-manage, but they always have us to support them if they need advice,” said Yvonne Davie, Craigs area manager for social security and savings.
People’s desire to manage their money can change over time, and in times of market volatility, Craigs notes that more do-it-yourselfers are asking for help.
However, the advice comes at a cost, with Craigs KiwiSavers paying an annual fee of up to 1.25%.
Heath finds the notion of people’s KiwiSaver retirement money being invested in do-it-yourself stock portfolios unattractive.
It would be a case where do-it-yourself investors decide they can do better than professional fund managers.
“It’s a huge punt,” he says.