KEY POINTS:
It's no surprise that investors haven't been racing to sign up for KiwiSaver. Without oodles of time and considerable financial knowledge, or a good adviser, it's almost impossible to sort the wood from the trees.
It's a Catch 22 situation. There is so far no fully independent source
publishing comparisons of the many KiwiSaver providers and their funds to help investors make a decision. But for the procrastinator who waits, that's $20 a week lost in free Government subsidies.
There is a lot of angst out there about comparative performance, says Bernard Long, chief executive of Goldridge Wealth Management, a nationwide financial planning group. But with most people just putting the minimum $20 a week in it's not going to be a huge concern immediately until the balances grow.
The big mistake, says Jeff Matthews, senior financial adviser at Spicers Wealth Management, is choosing the wrong fund, whichever provider they go with.
The default providers have funds ranging from 100 per cent cash at one end aimed at the super-conservative investor to growth funds at the other end, which is 85 per cent invested in property and shares, and 15 per cent in fixed interest. Other options include balanced and conservative funds.
"It is almost irrelevant whether you choose ASB, ING, AMP or whatever," says Matthews. "If you are in the default fund you are in the wrong place. You need to choose what is the most appropriate mix of investments for your age and circumstances."
With many providers investors can switch between funds for free and in many cases change providers without charge.
Many of the financial planners the NZ Herald spoke to say that investors' obsession with fees is largely misconceived. The difference between the fees offered by the six default providers are not huge, says Matthews.
"If you have a fund manager who consistently [beats the others] most people will be willing to pay a further half per cent."
No one will know, however, for three years which the winning funds really are and then DIY investors may do what is common in Australia - chasing last year's best rates, which isn't always a winner. "You need to understand the nuances," says Matthews. "That usually comes with advice."
It may be a good idea to jump on board with one provider in the short term, but it isn't always as straightforward as it appears, says Stephen Parr, director of Tauranga-based financial planning firm Harmer Parr. For example, some providers don't allow savers to join unless they plan to make a regular contribution. Others don't allow savers to use their money for mortgage diversion.
Believe it or not, many financial planners are struggling to get hold of the information they need to decide which provider to recommend to clients.
Robert Oddy, director of International Financial Planners, says the investment statements supplied by providers are not sufficient to make a quality decision. The New Zealand Companies Office is charging per page to copy the companies' prospectuses and some providers charge as well. "They should be on the web as a PDF," Oddy says.
Without them, says Oddy, planners and other professionals are not able to, for example, discover any hidden charges. "I am appalled at this lack of information available to the public."
Another problem for investors is that financial planners and other professionals will have difficulty making money out of KiwiSaver because of its low fees and the relatively small sums of money, which will be drip-fed in.
Parr says his company has approached this problem by organising KiwiSaver seminars, to help potential clients en-masse to determine which KiwiSaver fund is best for them.
Investment research house Fundsource, which has a publicly accessible website, is in the process of developing a comparison engine that would allow investors to rank providers, due out in September. The search, similar to Fundsource's current managed funds searches, will allow private investors to compare funds according to 25 quantitative and qualitative measures. This will include performance figures, once the first month has passed, which will build up over time.
The snag is that, for now, the search will only cover the default providers. Fundsource general manager Binu Paul says others will be added over the next year as and when they can be reviewed by Fundsource's analysts. The default providers are all currently companies that Fundsource has worked with and as a result it is relatively simple to include them.
For those who can't make a decision and are joining through the workplace, it's possible to join now and not make a decision on the most appropriate fund for another three months because the Inland Revenue Department holds KiwiSaver contributions from savers for the first three months, giving time to select an appropriate scheme and/or seek financial advice.
In order to choose a fund, investors need to know their own risk profile. The website Sorted.org.nz has a risk recommender calculator on it. Financial planners use risk profiling tools, which can range from a quick paper-based questionnaire to an in-depth computer assisted model, which delves scientifically into an investor's psyche.
Investors who join through work, but don't choose a fund, will automatically be channelled into one of the provider's default funds, which could be an absolute disaster for the long term growth of their retirement fund.
NZ Financial Planning (NZFP) general manager Craig Dealey says in the absence of thorough qualitative comparisons, his company has decided that for now at least it would narrow the search down to the six default providers, because the selection process was rigorous, which ensured a certain amount of transparency.
Within those six, it is currently recommending AXA, which is mid-range in terms of cost, and uses Arcus Investment Management, an independent firm that also contracts to NZFP to provide advice and other services.
Spicers has also chosen the AXA product, again because the fund is managed by Arcus, a firm Spicers has had a close relationship with for 10 years, says Matthews.
Rutherford Rede Wealth Management, like Spicers and NZ Financial Planning, has an existing relationship which determines the choice for now. In the case of Rutherford Rede it is Grosvenor Financial Services Group, which offers a mix of investments to financial planning groups. In the case of KiwiSaver, Grosvenor is providing its own scheme to planners who use its platform.
Harmer Parr is not aligning itself to any single provider, but looking for the best single fund to recommend in each of six categories: children, non-working, workers, self employed, executives and conservative investors. For example, says Stephen Parr, the best fund for children the company's KiwiSaver expert (recently poached from the Inland Revenue Department) has identified is a Westpac one.
For the other categories such as workers and executives Harmer Parr will be recommending other providers.
International Financial Planners is currently recommending the Law Retirement Fund and also Gareth Morgan KiwiSaver. Once the company has reviewed documentation for all of the providers it might change its recommendations, says Oddy.
Goldridge Wealth Management has chosen ING, not because it's a default provider, says Long. "They are big, they have a proven performance record and we like their administration and range of options available."
* Kiwisaver providers: www.kiwisaver.govt.nz/interact/services/kiwisaver/locateprovider
