Rupert Carlyon, founder of KiwiSaver scheme Kōura, talks returning from London and starting a platform as a way to find fulfilment in his work and why he is trying to help Kiwis make their nest eggs go further.
What does the business do?
Kōura Wealth is a new KiwiSaver scheme that has been set up to help people get better retirement outcomes. Koura really started in early 2018; I quit my job in April/May of that year, spent the better part of 18 months working through the technology and licensing and then we went live and got our first customers in October/November last year.
What was the motivation for starting it?
We set up the business out of frustration. [In the UK I] managed my own pension and had been given a whole lot of information and options around what to do, and then I came back to New Zealand in 2014 and tried to take control of my KiwiSaver and was told 'Don't worry about it, it's simple just chuck it in a growth fund and never think about it again' - which was completely the opposite to what I was told in the UK with my pension, where they encouraged us to get involved.
We did a lot of research in the market and I saw that KiwiSaver had some core fundamental problems where people were not engaged. About 25 per cent of people were still sitting in default KiwiSaver funds and people didn't really know or understand what KiwiSaver was about and unfortunately what that meant was people weren't making the decisions that they need to make to get the most out of their KiwiSavers. It looked as though there was a little bit of a KiwiSaver time bomb that was coming because people thought their retirement was sorted because they've done their KiwiSaver. So to solve this what we did was we saw internationally that people were coming out with digital advice tools that can help people make better decisions for their investments.
The two issues in KiwiSaver we wanted to solve was; making sure people end up with the right fund selection, so we built a simple tool that asks a few questions and then makes a recommendation, and making people understand that a 3 per cent contribution - the default rate - will nowhere near give you enough for retirement. We're trying to change the model, to create some mechanics and tools for people to get the retirements they deserve and the most out of their KiwiSaver.
What's your background?
My background is investment banking, I spent a very long time between Auckland and London doing investment banking. I came back to New Zealand because I was sick of working hundred-hour weeks and when I got back I did strategy roles at Tower and Vector, and my final role was strategy at KPMG. Throughout all of that time I was constantly trying to figure out what to do with my life, recognising that I always wanted to have a business of my own.
How big is the team?
We're a team of three, but when I set the business up we partnered with Hobson Wealth to reduce risk and to make things easier. We planted ourselves within the middle of Hobson so the core Kōura team is small but we've got the resources of Hobson.
What's the biggest KiwiSaver concern you come across?
The big one for us is how do we get engagement from people because we know people put it off. Retirement is seen as money worry and that it is so far into the future that people don't feel like they need to deal with it today.
How would your rate New Zealanders' financial literacy?
Financial literacy is a problem around the world and New Zealand historically has had pretty poor financial literacy. It has meant that we have a savings environment which is very heavily centred around property and term deposits, and because we have had high term deposit rates and a booming property market, everybody thinks that sharemarkets are bad - there's a massive lack of understanding.
New Zealand has ended up with an industry that's dominated by the banks, and what that means is that many people don't see the difference between their KiwiSaver and a standard term deposit or savings account. Small players, we're fighting a massive uphill battle against a much larger part of the industry which is saying 'Don't worry about it, just sign it over, it's something for when you're 65, don't think about it again'.
What progress have you made trying to shift that dial?
For us, eight months in, we're now in a world where we are starting to get a little bit of traction, starting to get people to understand and see what we're trying to do. Over the last three months Covid has been hard from a customer uptake perspective, but on the other hand what it has done is allowed us to stress-test our model: our funds have performed extremely well and that one of the quickest ways to destroy wealth in KiwiSaver land is switching funds during a crisis. Elsewhere in the market had between 8 and 10 per cent of people switching growth to conservative funds back in March and we had less than 1 per cent in ours. Eight to 10 per cent is low but when you consider that very few people are actually engaged, that to me is quite a high number.
How much do New Zealanders need to contribute to their KiwiSaver to have a comfortable retirement?
Somewhere in that 10 to 12 per cent range. In Australia, for example, the minimum contribution is going up to 12 per cent. In the United Kingdom, the minimum is 8 per cent and they know that is not enough. New Zealand was very late to the superannuation game, KiwiSaver was only launched in 2007 whereas the rest of the world launched their schemes in the 70s and 80s. When KiwiSaver was launched there was meant to be a gradual process to increase this, if the plans had gone through, the average person would be contributing somewhere between nine to 10 per cent, unfortunately what happened was we had the Global Financial Crisis and the National Government at the time decided that KiwiSaver was an area that wasn't so important so New Zealand halved the government contributions, stopped the minimum default contributions growing and removed the compulsion factor.
I do think there's a massive argument, 15 years in, thinking about how we align outcomes and people's expectations of KiwiSaver with what's happening. About 45 per cent of Kiwis don't have any savings outside of their KiwiSaver so it really shows their expectations.
What are you focused on for the rest of the year?
Covid doesn't change much for us, for the rest of the year we'll be further refining our tools and digital advice offering to make that better, and learning how to sell. We're still learning how we can get our messages across and what we do to resonate with potential customers.
We sell a very low value product; it's high value to the person but a very low revenue for us, we make less than $100 per customer and so that means it will take us a long time to break even - we think we're two and a half years away from breaking even. At the moment we have about 200 customers.
What advice do you give to others who want to start their own business?
Secure capital early, and find a partner - that has been a godsend for us.