There is a lot of confusion in investor-land about what "shopping around" involves. In many cases, says the FMA's Paul Gregory, Kiwis are moving provider before finding out about the one they're with. There is a big difference between transferring between funds at your existing provider and switching providers, Gregory adds.
It's quite possible, and a lot less hassle, to stay with the same provider and simply transfer internally from one fund to another more suited to your needs.
Unfortunately those needs are sometimes difficult to assess for the layperson. Many Kiwis were auto-enrolled in default conservative funds and simply stay there. And people choose to invest in overly conservative funds because they don't understand the big picture or are frightened of the concept of share investments that go up and down in value.
But remember, says Pushpa Wood, director of Massey University's Financial Education and Research Centre, KiwiSaver is an investment not savings, so is expected to have gains and falls along the way. The payback for that volatility is you get a better long-term return than in a savings account.
When the FMA dug into 1000 KiwiSaver customers' accounts it found fewer than 10 received proper financial advice when they switched. The rest had switched for sometimes dubious reasons, such as the bank slipping in a KiwiSaver application into the bundle of forms for a mortgage application.
Anyone considering switching providers really needs to see a financial adviser or do a DIY KiwiSaver health check, to check they are on the correct tax rate - and receiving their full annual member tax credits. Start by taking a risk tolerance test through a service such as SavvyKiwi.co.nz or Myrisktolerance.com, or do the same through a financial adviser. It costs, but can pay off handsomely.
Even if your test shows you can tolerate the uncertainty of growth funds there may be reasons why you want to go into less volatile fund. If you need the money within five years to buy your first home or to spend in retirement you may prefer to keep it in a more conservative fund to ensure it doesn't drop in value just when you need it.
Once you understand your risk tolerance and know if your fund should be conservative, balanced, growth or aggressive you can shop around and look at returns, fees and services. If you're not using a financial adviser check out Sorted.org.nz's Fundfinder, Canstar.co.nz's KiwiSaver Ratings Report, and the SavvyKiwi.co.nz comparison tool. All provide valuable insight.
But be careful if a provider tries to entice you to switch. This week the FMA has warned banks in particular against "inappropriate incentives" (ambush selling such as making credit card or mortgage offers dependent on the customer moving their KiwiSaver to their bank).
KiwiSaver providers have also been told they must not only talk up their own products. They need to make it very clear that customers of rival KiwiSaver companies need to consider the pros and cons of their existing provider before switching, says Gregory.
Switches need to be informed decisions, not just based on one factor, says David Boyle, general manager investor education at the Commission for Financial Capability (CFFC).
Fees have become an important driver in switching KiwiSaver funds, thanks to the launch of not-for-profit KiwiSaver provider Simplicity. It argues the average person could retire $65,000 richer by choosing a low-fee fund.
Finally, beware of chasing last year's returns. When comparing funds it's best to look at the average of the past 10 years' returns if possible. KiwiSaver is a long-term investment and if funds have a one-off stellar year it doesn't mean that there will be a repeat next year. Look for long term gains.
