Most people don’t know what they’re looking for in a KiwiSaver comparison exercise. It’s easy to conflate the need to switch fund type (conservative, balanced, growth and aggressive) with changing providers. They’re not the same thing.
What’s more, many people choose a new fund or provider based on marketing. But that isn’t enough. All KiwiSaver providers will say they’re the best.
It’s important to understand the pitfalls of switching KiwiSaver. The first mistake people can make about “shopping around” is assuming that they have to switch providers to improve their outcome.
The fund type makes the biggest difference for most people. A balanced or growth fund, if appropriate for the individual, could return tens or even hundreds of thousands of dollars more by retirement alone on exactly the same contributions.
Don’t assume your KiwiSaver is a lemon if all funds have been brought down by the market.
Good decisions require understanding your comfort zone on risk, your investment goals, your time horizon until you need the money, and understanding what the funds invest in.
New Zealand has a number of different comparison sites. Everyone’s brain is different. The more variables in the mix the better for me, whereas some people prefer the simple approach.
The best known KiwiSaver fund finder tool in New Zealand is Sorted’s Smart Investor Smartinvestor.sorted.org.nz/kiwisaver-and-managed-funds In less than a minute you can compare a wide range of KiwiSaver funds. Or you can enter data about your current age and stage in life and see a list of funds that might suit you on Sorted.org.nz/tools/kiwisaver-fund-finder
The MindfulMoney.nz KiwiSaver comparison limits the results to providers and funds that meet certain environmental and social criteria. KiwiSaver providers can be guilty of greenwashing their funds, and this search weeds them out.
Other useful comparison sites include Canstar.co.nz, which has star ratings, as well as the usual returns and fees. Morningstar produces a quarterly KiwiSaver Survey, which is useful reading for people who like to dig deep. It has 10-year average returns, which is a better comparison than shorter comparisons. National Capital researches KiwiSaver and produces a Value for Money Report.
Whatever the search, it’s not always best to choose the fund with the highest return or the lowest fees. Both returns and fees are important. However some of the highest earning KiwiSavers have quite a narrow range of investments, such as United States shares only, which may not weather the ups and downs as well as more diversified funds.
Past performance is also no guarantee of future performance. Just because one manager has outperformed in the past year or two, doesn’t mean the returns will be replicated going forward. Fees matter as well, but low fees don’t always guarantee better returns.
Taking financial advice from a real human can help a lot in making an informed KiwiSaver choice. Nick Hakes, chief executive of Financial Advice New Zealand says a qualified expert who takes the time to understand your unique circumstances, your risk tolerance to ups and downs, your timeframes, and money values is key to making good choices.
Hakes points out that a really important aspect of independent financial advice from a human is that advisers often stop clients making bad decisions such as panic-switching KiwiSaver when markets fall.
Financialadvice.nz has a “find an adviser” search. From there, check out the adviser’s website to see if KiwiSaver is an area of focus, said Hakes.
Some KiwiSaver providers such as Generate and ANZ offer free financial advice sessions for clients. They’re not going to advise signing up with a competitor, but the advice can be valuable for clients. Generate’s chief executive Henry Tongue said that understanding your options and the implications of different fund choices can enhance returns. No question was too silly for Generate’s team of advisers, said Tongue. “Especially if the answer could help add tens of thousands of dollars to your KiwiSaver account.”
Artificial intelligence (AI) is going to get better and better at making financial recommendations. There aren’t many good options in New Zealand now. But watch this space. Hakes says experience overseas is that AI advice is the start of the process and then clients want to talk to a real human being.
