[GRTV] How Lifetime 2.0 looks with Ralph Stewart Tips for including giving in financial plans Are KiwiSaver providers managing funds successfully?
ASSET 04 | 2021 | WWW.GOODRETURNS.CO.NZ
Ethical investing comes of age
140 YEARS
1881 – 2021
140 years young Trustees Executors is proudly celebrating 140 years of helping Kiwis protect their assets and secure their financial futures. Thank you to our clients, our people and our partners for their long-standing support and loyalty over the last 140 years. Here’s to 140 more! Specialist services backed by 140 years of experience • Private Wealth • Corporate Trustee Services • Investment Administration enquiries@trustees.co.nz 0800 878 783
02 | ASSET 1
www.trustees.co.nz
Contents | ASSET 4
16
20
Ethical investing comes of age Matthew Martin with the wrap of the inaugural event held in June. Find out who is performing best in the ESG space.
Adviser Profile Dr Rodger Spiller on his passion for ethical investing.
UP FRONT 04
EDITORIAL
05
OPINION
06
09
10
The good issue
Crypto insomnia, phone habits and KiwiSaver.
NEWS A round up of the latest financial planning news.
FEATURES 12
22
24
GRTV Ralph Stewart talks to Philip Macalister about Lifetime 2.0.
28
26
Paul Gregory on his road to regulation via journalism.
How advisers can embrace philanthropic investing.
THE GREAT WEALTH TRANSFER
PRACTICE MANAGEMENT Russell Hutchinson on some of the strange life insurance exclusions to be wary of.
GIVING FEATURE
Patrick Gamble discusses estate planning and the “great wealth transfer”.
PEOPLE An industry stalwart is lost; Partners Life to AA for Tereora; Jonas joins NZXWT.
PROFILE
REGULARS
32
INVESTMENT COMMENTARY David Van Schaardenburg asks, are providers successfully managing KiwiSaver’s funds?
10 TOP PRODUCTIVITY TIPS nib's Stu Crowther with his top 10 tips for advisers.
WWW.GOODRETURNS.CO.NZ | 03
UP FRONT | EDITORIAL
T
The good issue
his issue has a theme around good things. In it we revisit the winners of the Mindful Money Ethical Investment Awards. Also, in this issue we take a look at what we colloquially call “giving”, or philantrophy. Having a look at ethical investing is timely as the United Nations Climate Change Conference (COP26) is taking place in Glascow when you read this. I have for many years been interested the area of ethical and responsible investing. It is something that is only just coming of age, but I recall attending Responsible Investing conferences in Australia 20 years ago. Now it has become mainstream. I find it interesting today how many KiwiSaver managers are promoting their schemes to the public based on their RI credentials. The next step in this journey is to make sure that managers really are living up to their advertising.
On this front there are a number of good developments. The FMA has said it is watching carefully for any “greenwashing.” While the FMA has been criticised for being soft on enforcement it seems that there has been a change in attitude and the regulator is being far more proactive. This is something you will hear more about in ASSET and Good Returns when we cover the departure of chief executive Rob Everret. Another good development is that that specialist RI manager Pathfinder has produced a Sustainability Report. It discloses, in depth how they invest ethically and responsibly. It is all good for managers to make promises of no fossil fuels, renewable energy investment and emission reductions, but they need to be matched with easy-to-understand reporting. We have all seen on the news clear evidence of how the climate is changing and the damage this is causing.
Head office and advertising
Contributors
1448A Hinemoa Street, Rotorua PO Box 2011, Rotorua P: 07 349 1920 F: 07 349 1926 E: philip@tarawera.co.nz
Stu Crowther, Graham Duston, Patrick Gamble, Russell Hutchinson, Matthew Martin, Daniel Smith, David Van Schaardenburg.
Subscriptions
Publisher
Philip Macalister
Jill Lewis P: 07 349 1920 E: jill.lewis@tarawera.co.nz
Subeditor
Moved offices?
Dawn Adams
Design
Samantha Garnier
Make sure you don't miss an issue by changing your address. Go to tarawera.co.nz/coa
It may seem far away from us sitting in our little paradise at the bottom of the world, but how we invest can make change. Indeed, money is critical in driving change and in many countries around the world, we are seeing finance and investment beginning to play a crucial role in the shift to a more sustainable economy. Responsible investing is a major theme and one where you will see ASSET and Good Returns doing more work to help advisers. And finally we hope you are all doing well in these rather unusual times. To those in Level Three areas, Kia Kaha.
Philip Macalister Publisher
ASSET is published by Tarawera Publishing Ltd (TPL). TPL also publishes online money management magazine Good Returns GoodReturns.co.nz and TMM – The Mortgage Mag. All contents of ASSET Magazine are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited. ISSN 1175-9585
UP FRONT | OPINION
Crypto insomnia, phone habits and KiwiSaver
Y
ou may have heard about the wedding in Vancouver where a cellphone made an infamous, cameo appearance at the ceremony. It happened four years ago. The groom Russell Loren was watching, delighted, as his resplendent bride Taylor walked down the aisle to marry him. There was magic in the air. Well, there was until Loren pulled his phone from his pocket and started staring at it. Asked later why he did this, he replied, “Crypto never sleeps.” A video of the moment became an internet sensation. This came to mind as I read the FMA’s recently-released, excellent report “Lockdown: a review of KiwiSaver member behaviour in response to Covid-19” (prepared by PwC). Putting Loren’s woefully inappropriate timing aside, what the wedding incident illustrates is that he had up-to-theminute investment information at his fingertips, plus the means to act on it. This has been called the digitisation or gamification of financial services. It’s part of the investment landscape now. And it was at play among some KiwiSavers during the pandemic. Covid-19’s sudden, unexpected arrival sent financial markets into a tailspin. This marked the first time KiwiSaver membership was truly “road tested” in a bear market, for although KiwiSaver was launched a year before the GFC struck in 2008, the impact of that financial shock on member behaviour was minimal. There were, I believe, a couple of reasons for this. 1
It was early days for KiwiSaver, most member balances were low, their growth due more to investor cash flow (including a dollar for dollar Member Tax Credit subsidy and a $1,000 kick start) than performance.
BY GRAHAM DUSTON
This meant that even if investment returns were negative 10, or even 20%, most investors had the same balance at the end of the year (or a slight negative) than at the start. 2
The digitisation and gamification of financial services and flow of information via the internet was only just beginning.
More than a decade on from the GFC, when KiwiSaver balances had burgeoned and were more subject to the impact of market performance, a real test arrived in the form of a pandemic-induced bear market. History, more than anything, showed us this was inevitable. Since 1990 we’ve experienced a chain of periods of extreme market volatility, each one tripped off by a different event – the 1990 invasion of Kuwait, the bond market crash in 1994, the emerging market crisis in 1998, the dot-com crash in 2000, the September 11 terrorist attack and the GFC in 2008. Covid-19 was simply the latest in this long line of market shake-ups. The FMA report revealed that over the Covid-19 lockdown period nearly three times as many KiwiSaver members switched funds as did during the same period in 2019. Depressingly, only 9.1% of people who switched to a lower risk fund during Covid-19 switched back to a higher risk fund by August 2020. This effectively locked in their losses. One very interesting revelation in the report was the fact that the number of younger members who switched during this time was disproportionately high. Relevant to this finding is a recent study by behavioural economists at The University of Sydney. This research concluded that people aged 18-24 make
more “welfare-decreasing decisions” when in the presence of people their own age. What’s this all about? It’s the confluence of three things, the first being investment markets that “never sleep”. The second is a younger cohort of investors for whom the constant checking and use of phones often amounts to an addiction. And the third is the arming of these hand-held tools with apps and financial services websites that provide users with gamified experiences. Having the ability to manage their investments themselves 24/7, together with the social factor The University of Sydney research highlighted, appears to have led some young people to believe they must act, must make a call immediately, when market volatility strikes. The notion of patient accumulation of wealth, based on the knowledge that market bumps can be tolerated because the long-term trend is an upwards march, would seem to be in danger of becoming a forgotten concept. This issue is of vital importance. We now know that over 200,000 New Zealanders will receive lower KiwiSaver balances in retirement because they made a poor decision, locking in their Covid-19 losses. Do we want the episode to repeat itself the next time a bear market arrives? I suspect that if it did, and affected a similar number of people, it would become a serious public policy issue. There are a number of potential solutions to the problem. Most involve a change to business models and practices on the part of KiwiSaver providers. I will leave you on this reassuring note: the Lorens are still together after that less-then-ideal start to married life. A WWW.GOODRETURNS.CO.NZ | 05
UP FRONT | NEWS
The pros and cons of investing in crypto Love them or hate them, it seems cryptocurrencies are here to stay with some Kiwi investment firms embracing them, while others remain wary. Recently, Implemented Investment Solutions (ISS) announced it is launching a new high-risk Bitcoin fund, NZ Funds say there’s a place for them in a diverse portfolio, however, Generate KiwiSaver say they’re not suitable for retirement savings. Right now, the RBNZ is consulting on the possibility of a national digital currency and earlier this month Easy Crypto raised $17 million in capital to expand its business. NZ Funds’ chief executive Michael Lang says having a small amount of cryptocurrency in a retirement (think KiwiSaver) or investment portfolio makes for a better risk-adjusted portfolio as it acts as an investment stabiliser. Lang says one of the many uses of cryptocurrencies is decentralised banking that “... has the potential to provide banking services to a significant portion of the world’s population who are unbanked and, in doing so, will help relieve poverty, protect personal information, and work to prevent fraud and reduce crime”.
According to Easy Crypto co-founder Janine Grainger, the company’s capital raise of $17 million would help it expand into more overseas markets including Indonesia, the Philippines and other parts of Asia. Jumping on board with Easy Crypto were some big names in the New Zealand investment scene – Nuance Connected Capital, Icehouse Ventures, Pathfinder Asset Management and Alvarium. Grainger says due to industry caution about cryptocurrencies it has been difficult to find investors but raised the $17 million in just three weeks and is likely to offer an IPO to general investors in the future. Grainger is also involved with the new ISS Bitcoin fund as a co-founder of Vault Digital Funds. The Vault International Bitcoin Fund – being issued by Anthony Edmonds’ IIS with Vault Digital Funds as fund manager – is a New Zealand owned and operated digital assets investment manager. Vault co-founder and chief executive Vinnie Gardiner has a vision to “... help propel New Zealand to be a world leader within the rapidly growing Fintech arena”.
But the product disclosure statement gives it the highest risk rating possible – a seven. “This is a highly speculative investment. Bitcoin is a highly volatile asset. This means the fund will not be appropriate for all investors,” the PDS states. The fund has a 2.5% fee and the PDS recommends a minimum suggested investment timeframe of 10 years. Meanwhile, Generate says it’s not interested in cryptocurrencies, “... the volatility means it’s probably not suitable for an investment account that has the goal of saving for retirement,” said Generate’s fixed interest portfolio manager Ayrton Oliver. He also says there are questions around the regulation of crypto and its high energy use. Portfolio manager Sam Goldwater says no one has a clue where crypto will go in the years ahead as it is impossible to value. “If you can’t value something then it is just speculation ... and speculative activities are not appropriate for retirement savings.”
Lifetime and Saturn both buy businesses Some significant acquisitions have gone ahead recently with Lifetime buying an Auckland-based advice group; and financial planning group Saturn Advice purchasing National Capital. Christchurch-based Lifetime Group acquired One50 Group with Lifetime managing director Peter Cave saying the deal helps Lifetime achieve several goals, including a presence in the vital Auckland market, and to become a nationwide one-stop-shop financial advice offering. Also, One50 Group adds accounting and property accounting partnerships, general insurance and business advisory services to the Lifetime advice suite.
06 | ASSET 04 | 2021
One50 Group managing director Greg Munt and his team will own around 10% of Lifetime once the deal is complete – Cave will continue as managing director, Munt will join the executive leadership team with the group operating under the Lifetime brand. Saturn Advice is an Auckland-based financial planning group and has bought KiwiSaver adviser firm National Capital with Saturn’s managing director John McConnell saying KiwiSaver was the missing piece of Saturn’s investment puzzle. Formed three years ago, National Capital provides KiwiSaver research and advice covering more than 200 funds from 13 providers – its goal is to
provide KiwiSaver advice to one million New Zealanders and reach $100 million of funds under advice soon, National Capital director Clive Fernandes says. McConnell says adding a digital advice service to the business is a challenge and financial advice has been done “... much the same way for almost forever” – that is people getting out and working with clients. The way KiwiSaver was set up has made it hard to give advice, he says, but the National Capital model is showing advice can be given to KiwiSaver members using technology.
Duff warning In a warning to health and life insurance advisers looking to sell off their fire and general portfolios, Warren Duff says they need to check their contracts after finding he couldn’t on-sell his client book. Duff, who has spent more than six decades in the life insurance business, says he’s “bitterly disappointed” after learning his fire and general (F&G) clients were returned as direct customers to his three F&G providers.
Duff says he held “substantial commissions” with his insurers and they “... got very good quality business from me and I feel the industry I worked with for decades has let me down somewhat”. “There will be a lot of commission agents writing life and doing some F&G and getting their commission so they need to be very wary of what’s in their portfolio agreements. “I know it sounds like sour grapes, but
check your agreement, take it to your lawyer,” Duff says. Financial services consultant and director of Chatswood Consulting Russell Hutchinson says it’s not unusual for all types of insurers to stop advisers selling their books but has some sympathy for Duff’s position. “It’s a good warning for others but this does happen in the life sphere as well as fire and general.” A
New Zealand’s No.1 performing diversified growth fund for 2 years* We’re Invested in Your Client’s Growth Visit www.mintasset.co.nz or call 0800 646 833 to speak with our team of experienced investment professionals.
Marek Krzeczkowski — Portfolio Manager
Mint Diversified Growth Fund *
Source Zenith Investment Partners NZ Limited performance report as at 31 August 2021.
Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement at www.mintasset.co.nz
FEATURES | SPONSORED CONTENT
I
Mortgage Link Celebrates 30 Years with Expansion
n the era of instant gratification and season of urgency of change, make sure that what you want for the future of your advice business remains centre stage, says Josh Bronkhorst, CEO of Link Financial Group, the holding company of Mortgage & Insurance Link, Advice Link (the company’s in-house CRM) and FG Link (the company’s Fire & General Insurance business). “Many advisers are grappling with change right now. An understatement of course. But amidst all the change and the immediate need to ‘get it right’ in this new regime, it’s crucial that advisers keep a firm view on what they want for the future of their advice business.” “We did the same at Link Financial Group: we took a long-term view on how our group could best serve both Kiwi consumers and financial advisers; to define who we wanted to be as a group in five to 10 years and beyond. In the same year that the group celebrates 30 years since the launch of its flagship brand, Mortgage Link, it continues to grow its insurance offering through the Insurance Link brand, Fire & General Insurance through the FG Link brand, its software and technology offering through the Advice Link brand and is also paving the way to further expand its advice services in the medium term to include investments through its Invest Link brand. “It’s been four years since we launched our Mortgage and Insurance CRM, Advice Link. Whilst this has been a massive and sometimes daunting task we now have +- 200 users including administrators. Anyone who operates under our licence is required to use our CRM for audit and file review purposes. Advice Link makes it much easier for advisers to follow a compliant process and also makes it a lot easier for us to assist our advisers through our ongoing file review and audit programme now run through Advice Link,” Bronkhorst says. “In addition to Mortgage and Insurance, under the Link Financial Group Licence – we will be selectively offering a home to Fire & General and investment advisers,” says Bronkhorst. We realised early on that offering advisers choice would be the most sustainable long-term approach.
Advisers who use our brand are required to operate under our FAP licence as Authorised Bodies however advisers who use their own brand are able to utilise our Aggregation services whilst operating under their own licence or the Link FAP licence. This we believe provides advisers with the flexibility to choose which operating model best suits them and their vision for their business. Advisers operating under their own licence are able to utilise our FAP services including file review and audit services and general compliance support provided they use Advice Link. We recently bolstered our compliance team through the appointment of experienced compliance manager Iwinca D’Souza who now leads a strong compliance support offering. Whilst Mortgage Link started out as an aggregator offering a home only to advisers who wanted to work under the Mortgage Link brand; Link Financial Group is now also home to more than 100 advisers (both Mortgage and Insurance) who operate their own brands. “When we sat down to plan the future of the group, helping advisers grow their advice services was top of the priority list. We now support advisers across all areas of advice – Mortgage, Insurance, Fire & General, KiwiSaver and soon investments also. We have created a pathway for those who would like to expand their own offering to their clients to a comprehensive and holistic advice model.”
08 | ASSET 04 | 2021
Image caption: Josh Bronkhorst
Since 2015, Link Group adviser numbers have increased from 25 to 200 plus. Over the last six years the company has consistently grown by +- 50% per year; growth Bronkhorst attributes to the group’s unwavering culture of support and progress. “Our three-decade experience as a group has taught us a lot about how to provide commercially valuable services for advisers, but also the importance of building and nurturing a culture that can be counted on for support. It might sound passé in today’s world, but we continue to pride ourselves on viewing the Link Group as an extended family.” We are often referred to by our lender and insurance partners as the Link family. “2021 has turned out to yet again be a big year for advisers. And in the busyness and urgency of change, it can be all too easy to let the short term take undue precedence.” “For those who are still going through the process of defining how they will operate under the new regime, I encourage you to give yourself the opportunity to ensure your decisions are made with both your short-term needs and your long-term goals in mind,” says Bronkhorst. A To find out more about Link Group and licence options for advisers, contact Kelly Brough 027 373 2864 | kelly@mortgagelink.co.nz or Josh Bronkhorst 021 835 506 | josh@lfg.co.nz
UP FRONT | PEOPLE
Industry stalwart lost
From Partners to AA
Jonas joins NZXWT
Admired for his intense loyalty, honesty, love of family, friends and golf, wellknown insurance adviser Steve Richens has passed away suddenly at the age of 66. Richens died on Wednesday, September 22 in Christchurch after suffering a series of strokes and leaves behind his wife Robyn, their two sons Matthew and Andrew and seven grandchildren. With his former business partner, Tony Vidler, Richens set up Moneta Financial Group in Christchurch in 1997 and he had recently retired handing the reins over to his son Matthew and Nick Hau in 2018. He was a loyal and long-standing supporter of Fidelity Life, winning the Chairman’s Trophy for 2012/2013 and the Fidelity Life Shield in 2014 and was a founding member of the Select Broker Group.
After a nine-month stint as chief operating officer at Partners Life, Nadine Tereora has left the business to take up the role of chief executive of the Automobile Association. Tereroa left Fidelity Life in May last year before joining Partners and was previously chief executive at Asteron Life. She is set to replace AA's longstanding chief executive of 30 years, Brian Gibbons, who will retire in January 2022. AA president Gary Stocker said Tereora has extensive and varied leadership experience in the financial services industry, "making her one of the leading and most innovative executives in the sector".
Craigs Investment Partners’ long-serving head of client services, Stephen Jonas, has left the company to join NZX Wealth Technologies as its chief operating officer. Jonas spent more than 16 years at Craigs IP and started his new role in mid-September. He has more than 30 years of experience in financial services covering investment management, product development, governance and client servicing. As NZX Wealth's COO, he will be responsible for planning and control across operations, reconciliations, tax and custody reporting as well as existing client relations management.
For the full version of these articles, visit www.goodreturns.co.nz.
CALL US TODAY Use our Brand or your Own Operate under our FAP or your Own Feel confident about operating in the new regime with our state of the art Mortgage and Insurance CRM (Advice Link) Link Financial Group Ltd FSP 696731
WWW.GOODRETURNS.CO.NZ | 09
FEATURES
To watch the full interview, download an audio podcast or to read the full transcript, visit: goodreturns.co.nz/grtv
Lifetime 2.0 Philip Macalister interviews Ralph Stewart MD and founder of Lifetime Income about the journey to Lifetime 2.0. Six years ago, Ralph Stewart had the ambitious goal of setting up NZ's first variable income business. Lifetime Income was aimed at giving investors a guaranteed retirement income for life, however long they lived. Last year, they were forced to do a capital raise, $15 million was the minimum needed, $22 million the goal, but that didn't happen. Now, it's time for Lifetime 2.0. Tell me, how did it all start? The business was going well. You'd raised capital a few times. You had sales which exceeded expectations. Then what happened?
We solved that by raising capital from shareholders in January '20. We had the big period, June to December '19, and were pretty excited at that point. We were flying with the right amount of capital, good solvency, good surplus of solvency capital. Covid came along. That challenged, again, our hedging. VAs require you to hedge risk, both mortality and investment. The volatility from Covid midMarch was severe. We stood up well, but we were targeting 80% hedge effectiveness. We came in at 60%, which created noise in the solvency standard.
If we can take this back to June 2019, between June and December the business really started taking off, $15, $20 million worth of sales per month.
This is the standard of the Reserve Bank?
And low interest rates were a driver? Very much so, and that's a twosided sword for us. One is obviously that complicates the guarantee, but also acts as a sales driver, so you've got to find the balance. During June and December, we were recalibrating our variable annuity (VA) to recognise low interest rates and introduce a quote system and a variable rate process. Previously, we used a rate card, but with low interest rates, we needed a rate per person. That was going on while sales were growing fast, and the recalibration was a bit slow. So during June and December, we challenged our solvency. 10 | ASSET 04 | 2021
Yep. We were nervous, because back in March '20, you don't know what's going to happen in April. We thought we'd better shore things up further and went to Hanover, and during lockdown we reinsured the business. We had some volatility experience, we had some reinsurance experience, and we had some rapid growth experience. Put all three together, and it indicated we probably should look at capital a bit differently. We talked to the Reserve Bank about that, who were very cooperative and helpful. Between April and September ‘20 with the new information we had we reviewed the solvency standard and the process. It was decided that more capital was needed.
So what was the change? Effectively the new information. Having observed how the standard worked with more volatility, with relatively rapid growth June to December '19, and the inclusion of reinsurance, the new factors that the standard hadn't really encountered before. This standard was created for Lifetime? At that stage, was that standard correct, or did it need to change? I think it was the best it could have been when we started out. The reinsurance data and some rapid growth identified that probably we could do things a bit differently in the standard. Did the standard get reviewed? It did. And what happened? It was agreed with the Reserve Bank that we should hold more capital, both retrospectively and looking forward. To recognise that period when we had the big growth, to recognise the impact that had on the total volume they determined we had to have $15 million, $10 million more than the standard.
Who decided that?
That was your minimum?
The Reserve Bank.
Yes.
You entered the market for $22 million, was your goal. We were holding $15 million. So plus another $15 million, was $30 million. Going to the market for capital was time-consuming. So, we looked forward for the next five years and determined how much capital we'd need for a five-year period from the period at which we raised the $15 million. We added seven to get to $22 million, and that would have covered us for the next five years. You weren't successful raising that capital? We were not. Was that capital amount that the Reserve Bank prescribed, fair? I think in the context of the recent experience of the period June to December '19, the volatility of Covid and the reinsurance, yes. What I discovered was that capital markets were not so keen on regulated capital guarantee products. Is that because it's regulated? I think, uncertainty. We discovered some information that we didn't know in 2015, which we knew in 2019. From an investor's perspective … what else do you not know that you might need to know? You talked to a number of organisations, and they were quite keen, but you couldn't get them across the line? We hired Forsyth Barr – they were the lead manager for the raise. Shareholders contributed about $6 million. We went through countless rounds, but the other 10 didn't emerge. What happened then? We looked at every option to continue. We tried four different things. The regulators, I can't use the word helpful, but were cooperative. First, we looked at, could we mutualise the VA? We worked through that process, and it didn't make a lot of sense, so we didn't pursue that. We sat down with the FMA and our lawyers, and looked at, could we convert it into a defined benefit superannuation
scheme? There are aspects that may have made that possible, but it probably wasn't the best protection for policy holders. Then we thought about it differently again. We built an allocated pension product, which is nine-tenths of a VA, put it to the VA policy holders, and 80% said, "We like it."
We deconstructed, and we built it for a KiwiSaver environment. I think with what we knew then, it was the Rolls-Royce. What we didn't anticipate was lower interest rates and capital volatility.
Tell me what's happened now.
I'd say it's the Bentley.
So 80% of the old investors in the Lifetime Income Fund came across into the new product.
One of the goals when you set up this business was to prove the concept of annuities in the market.
How much is that in terms of dollar value?
Yes.
The old VA hit about $129 million. There's now $98 million in the new fund. What was the threshold you needed to make it work? We needed more than 70%. We got about 80%. But the business was built around a guaranteed income for life, no matter how long you lived. Yes. You can't do that anymore? We can't. There's no implicit guarantee. What we do is we calculate an annuity factor per person. Under the old scheme, you effectively developed an annuity factor for the fund. How important was it to have that guaranteed element to it? Did you need to do that at the start? In hindsight, you wonder. If we knew what we know now, we might've gone straight to the … You might have gone straight to Lifetime 2.0? Yes. It's easy to look at it in retrospect, but were there factors which made this unforeseeable? The intention was to meet the need. How do I get guaranteed income for life? Between 2013 and 2016, we did lots of R&D. There was no doubt at that time, the VA was the best option.
Yeah. It's not the Rolls-Royce now, but it's not a Holden either.
Do you think you've done that? I think we set this up to meet the need, which is regular, safe retirement income for retired people. The VA was one way of achieving this. The need remains. We found another way of doing the same thing. Also, one of your goals for the original business, was trying to work with KiwiSaver providers? Does the new fund enable you to do that? It does. We're at a bit of a crossroads, and I think it's going to be exciting. As you know MBIE and, I guess, through the FMA, have effectively outlined what has to be on a KiwiSaver statement, relative to how you project a fund balance and how much income that might produce in the future. That's pretty static. I think it's 2.5% return after age 65, and everyone dies when they're 90. It just won't work. So, the opportunity to do that properly with some science, some recognition for ageing and individual situations, is huge. Where to now for Lifetime? You've got your new, I call it 2.0 out there, but you call it the next generation Lifetime Fund. Look, it was tough going to our policy holders and saying, "Listen, the guarantee that you bought last year can no longer apply." Customer loyalty has been outstanding. We’ve got to now serve that customer loyalty Well, all the best, Ralph. Fascinating story. Thank you. A
WWW.GOODRETURNS.CO.NZ | 11
FEATURES | PROFILE
From journo to regulator Paul Gregory’s life journey has been an interesting one. Daniel Smith talks to him about how journalism set him up for his current role with the FMA. BY DANIEL SMITH
12 | ASSET 04 | 2021
I
f eyes are the windows to the soul, then Paul Gregory’s windows have windows. The glasses he wears have large black edges that seem from another era. The thick frames and the engaging dark eyes behind them make Gregory seem more a newspaper mogul in the 1950s than a man altering the shape of New Zealand financial services. The newspaperman comparison is not just artistic licence, Gregory started as a journalist, working as a self-described “ambulance chaser” out of the Hawke’s Bay and Hamilton newsrooms of The New Zealand Herald in the 1990s. When asked if the move from journo to financial services was always part of his plan, Gregory gives a resounding “no”. “I was going to be an award-winning journalist on staff at The New York Times as far as I was concerned. I had done journalism for over 13 years in the UK. After coming back to New Zealand in 2002 I wanted to continue with journalism but there just weren’t any jobs available.” So in the early 2000s, Gregory found himself pivoting into a role as media relations manager at Westpac. Of the move, he says that he had to overcome a learning curve to match the skills he developed over a decade in journalism to the new world of media relations in financial services. “There is a different relationship to information. As a journalist you have no relationship to the facts, the skills are all in synthesising a story out of the scraps of information that you have. Whereas a media relations manager, the challenge is the exact reverse, to make sense of the vast amount of information you have.” But once Gregory got to grips with the new role he discovered that, “In this kind of communications role, the further upstream you can get in a decisionmaking process the more effective you can be. But you have got to earn that.” After realising this fact, the trajectory of Gregory’s career in this space has been in part a constant drive to get further upstream, closer to the decision making, closer to the action. His reasons for doing this come from another point he realised in his early days in the industry, the importance of financial decisions on the lives and the future of ordinary New Zealanders. “Financial products and financial services are the main way, and in some cases the only way that New Zealanders engage with their future whether they realise they are doing it or not.” This idea of the importance of financial services in the life of everyday New Zealanders is something that became ingrained in Gregory during his stint working with the Guardians of NZ Superannuation. He started in the role as head of communications in 2009, before moving closer to the investment action, eventually becoming manager of portfolio intelligence in 2012.
Of the move, Gregory says “The involvement and ability to influence and add value was really exciting for me. When the opportunity came up to join the investments team, I jumped at the opportunity. I was lucky that the super fund had sufficient imagination to let me go and have a go.” Once in the role, Gregory dived headfirst into the gritty details that came with investment portfolio intelligence. “The role was basically fastening myself to the end of a hosepipe of information that was coming down from investment managers at the super fund. The issues, the opportunities, the changes. It was like a gigantic police blotter except for investment managers. You rapidly do triage and figure out what is normal, what needs to be elevated, what needs to be followed up.” Here again, Gregory found that his early days in a newsroom had prepared him well for the financial world. “Again those innate journalistic aptitudes of being able to rapidly pore through vast amounts of information, some of it quite complicated, and parse it out into what actually matters, and communicating that with people to help them make decisions.”
‘The culture of the place [FMA] was part of the reason I came back because it is a really great place to work’ After his stint at the super fund, Gregory made the move to Pie Funds, where he started as group head of investments and eventually became COO. Gregory says that “At Pie Funds I had been involved with highly active concentrated managers which was an interesting experience to bring to the FMA. Together with being involved in another type of investment organisation. Whereas the super fund had an institutional process and a very explicit long-term purpose, Pie Funds was a smaller, boutique highly active fund manager with a small loyal group of investors that was quickly expanding. Despite the differences, it was a high care factor at both institutions.” Before working at Pie Funds, Gregory had a two-year stint working in communications at the FMA. After the experience of helping lead Pie Funds through the tumult of March, Gregory made the shift to go back to his old stomping ground, re-joining the FMA as director of investment management in November 2020. “When I came back I just got straight
‘I think investment managers, financial advisers, and the regulator are all trying to do the same thing. The industry wants to be trusted, it wants to be strong’ back into it. There were still a lot of the same people as when I was here last time, a lot of the leadership team and the key subject matter experts were still around. The culture of the place was part of the reason I came back because it is a really great place to work.” But other than the culture, the role offered a chance to get back to the action. “To again be close to the decisionmaking around investment, that was a great opportunity.” Gregory again wanted to use the opportunity of being close to the action to change the way New Zealanders engage with financial services for the better. “A financial product or service, these are things that are New Zealanders' main or only concrete engagement with their future. The regulator has a key role to play to make sure that as little harm as possible occurs to New Zealanders that use these products in the course of using them. These products are complex, abstract, and boring, therefore there is a lot of potential for harm to occur over a long period of time if they are not designed, sold, and managed with the fair treatment of the people using them in mind.” When reflecting on his career, Gregory does not go past those early journalistic tendencies as some of the main contributors to his success. “What I have found helpful are those core journalistic aptitudes. Strong intellectual curiosity, I just want to get involved and understand everything, which I am sure has been a pain in the arse for some people. I can and do talk to people from all walks of life, which is again a journalism skill. I can assimilate and synthesise large amounts of information quickly into what matters and what can help people make decisions.” Looking towards the future of financial services in New Zealand, Gregory is confident that we will see the average Kiwi continue to develop trust and confidence in the industry. “I think investment managers, financial advisers, and the regulator are all trying to do the same thing. The industry wants to be trusted, it wants to be strong. Our view is that that is a great outcome for New Zealand’s economic prosperity. The way to do that is to treat people fairly.” A WWW.GOODRETURNS.CO.NZ | 13
14 | ASSET 04 | 2021
WWW.GOODRETURNS.CO.NZ | 15
LEAD
Mindful Money Ethical and Impact Investment awards The inaugural awards event recognised key industry players in the ESG arena – Matthew Martin has the lowdown on the individuals, companies and funds performing at the top of the responsible investment space.
R
esponsible and ethical investment is nothing new to an industry that often measures success at the bottom line but as global issues like climate change and wealth inequality keep making headlines it is getting harder and harder to ignore. So it came as no big surprise to Mindful Money founder and chief executive Barry Coates that so many companies and individuals were keen to support the first Mindful Money Ethical and Impact Investment awards held in Auckland at the end of June. Coates and Dr Rodger Spiller, profiled in this edition of ASSET, have been at the forefront of ethical investment conversations for decades. And slowly but surely investors themselves are forcing those slow to change their attitudes to what could save the world from rampant consumerism – socially responsible and ethical investment. “It should come as little surprise that credible ethical investment funds do well financially, as well as doing good,” says Coates. He says there is a strong relationship between well-managed companies and companies that operate with high sustainability standards – they benefit from loyal customers, motivated staff and pay no fines for environmental damage. “Returns for ethical funds are also boosted by avoiding social, environmental and climate risks. “For example, after repeated warnings of climate risk, ethical funds have avoided fossil fuels. The returns for other funds have suffered as the value of fossil fuel companies plummeted over the past six years.” Coates says excess returns may seem surprising to those who assume markets reflect all available knowledge. However, the link between ESG factors
and share prices has only recently entered the mainstream and is still not incorporated into many financial models. “A vivid example of information failure has been the strength of climate denial in countries like the USA, and the lack of understanding of climate risk.” He says evidence of strong ESG returns has been shown in research studies over the past two decades, including a review of thousands of studies by Morgan Stanley, and a similar analysis by Hamburg University. “At the same time, annual surveys of the public by Mindful Money and the RIAA show there is a growing understanding that ethical policies are good financially as well as for people and the planet. “It is one of the factors driving the rapid growth of ethical investing in NZ and internationally. “As the chief executive of BlackRock, the world’s largest asset manager commented “... the question used to be, why invest ethically? Now the question is why not?”
16 | ASSET 04 | 2021
Image caption – Harbour's Ainsley McLaren with Matthew Band from Trustees Executors.
The big winner Pathfinder Asset Management was the big winner on awards night picking up the Best Ethical KiwiSaver Provider and Best New Ethical Fund awards and was highly commended in the Best Ethical Retail Investment category. Pathfinder was set up in 2009 by its current CEO John Berry and CIO Paul Brownsey and is part of the global wealth management company Alvarium. Berry says it was a wonderful feeling for the team at Pathfinder to see their hard work rewarded. “We’ve been working hard and pushing boundaries in ethical investment for over a decade, and it feels amazing for the team to have this recognised,” he says. The award judges said Pathfinder had “... raised the bar with its KiwiSaver funds, providing the public with opportunities to invest in sustainable themes such as renewable energy and access to water and to invest in impact companies that create social and environmental benefits”.
‘It should come as little surprise that credible ethical investment funds do well financially, as well as doing good’ Barry Coates
“John Berry and Paul Brownsey have shown public leadership on ethical investment,” they said. Berry says the awards help show ethical and responsible investment has become mainstream and is now widely adopted by fund managers, financial advisers and investors. It’s hard to pinpoint any single event that inspired Berry and Brownsey to focus so intently on ethical investment, Berry describes it as “a series of nudges”. “These nudges have been new levels of awareness from important relationships – like having kids and working with Ngai Tahu. “These gave Paul and I a better understanding of inter-generational care and kaitiakitanga but there have also
been impactful one-off events that have nudged us along like meeting Al Gore and learning about levels of humanproduced toxins in the Mariana and Kermadec trenches. “Ultimately, I think, it’s where both our hearts and heads are,” Berry says. As the momentum behind responsible investment grows Berry says an incredibly wide range of investors are now using their funds and just recently Pathfinder saw its KiwiSaver funds under management hit the $100 million mark. Berry says more financial advisers are recommending their clients use Pathfinder’s funds, as well as charities and not-for-profits. “High net worth investors will also use us because they care about the real-
world impacts of the way they invest, and then there are KiwiSaver investors who can’t resist our combination of great returns and ethical investments.” Pathfinder’s funds have been inspired by the United Nations’ 17 Sustainable Development Goals and they channel their investments into four areas where Berry says they can generate the biggest impact – both in terms of wellbeing and wealth. “We are after the kind of impact that helps achieve the UN’s goal of “a better and more sustainable future for all”. “And at the same time, we need to generate wealth for our investors through good returns.” Pathfinder’s four impact investments are renewable energy, energy efficiency, water and technology.
Awarded Best Ethical KiwiSaver & Best Ethical Growth Fund by Mindful Money 2021
Ethical KiwiSaver & Managed Funds | path.co.nz
Image caption – Barry Coates (middle), Matthew Mimms (right) and Philip Macalister at the awards ceremony.
Pathfinder Asset Management Limited is the issuer of the Pathfinder KiwiSaver Plan. A Product Disclosure Statement for the offer is available at www.path.co.nz
Invest in the kind of world you want to pass on.
WWW.GOODRETURNS.CO.NZ | 17
‘We’ve been working hard and pushing boundaries in ethical investment for over a decade, and it feels amazing for the team to have this recognised’
“There is a list of cutting edge science that will come to market in the next few years and I am very optimistic that purposeful capital will make a difference here.” But you need strong leaders to grasp hold of the situation and who then do something tangible to address the problem. “Recently, we had Fortescue Metals Group announce they will joint venture with Ngai Tahu and potentially some other large NZ companies to invest in a large green hydrogen plant in Southland,” says Bascand. He says almost everyone in the investment scene now recognises that within five years what they do with their capital will have both a financial and sustainable development goal attached to it. “It’s not sufficient to just be excluding the large carbon emitters because the irony here is it’s often those large carbon emitters who will eventually be the path to a Paris 1.5°C world.” Those large emitters may be uninvestable today but need to be encouraged to change their business practices and technology. Bascand says there is a handful of carbon emitters “... who have decided they’ll be the last people on the planet and are not going to change”. But he says there’s hope when you consider some of the giant steps Contact Energy have made locally by turning off gas plants and building larger geothermal electricity projects. Bascand points to some recent statistics released after the first four months of the electric vehicle rebate scheme with the sale of EVs moving from 3% to 12%. “It’s going to take 10 years, but we’ve got to make a start.” After being started by the government in 2010 as a superannuation fund, Harbour now has around 130 large investors including some of the banks, KiwiSaver funds managers, philanthropic organisations and many iwi groups, along with about 400 financial advisers. “They have all joined us on the road to sustainable investing ... now we are talking to them about how we bring them along to the next level. “We have an increasing number of advisers who are focussed on sustainable actions and are wanting to listen to our stories ... and their clients are interested in these stories as well. He says Harbour continues to engage with global leaders and are subscribing to global data that allows them to understand combinations of climate change and other sustainable global measures. A
The other big winner on the night was the team from Harbour Asset Management who won the Most Ethical Retail Investment provider award. The judges said they were particularly impressed by Harbour’s strong research capability and analysis of Australian and NZ companies. “They have demonstrated in-depth engagement with companies, with examples of how they have helped to improve social, environmental and governance performance.”
Harbour’s managing director Andrew Bascand is passionate about decarbonisation and has been since setting up shop in Wellington back in 2009. Harbour signed up to the UN’s PRI in 2010 and has not looked back. According to industry analysts Morningstar, “Harbour sets the standard in the local industry for transparency, disclosure, and investor engagement. In our view, Harbour is one of the strongest stewards of investor money in NZ.” “We are really excited, there was a lot of work that went into our submission, highlighted by the amount of engagement we had with the companies over the last year that we think made a significant difference,” says Bascand. He adds, a company can start its responsible investment journey by excluding some investments “... but if you want to make a difference you have to be purposeful with your money and engage with it – you get a lot more satisfaction from it”. Being an optimist, Bascand says ethical investment has opened up a world of opportunity. “Right now it’s great the dialogue is focussing a lot more on decarbonisation and climate change and that reflects two forces – we are actually beginning to see more and more climactic events that are both unusual and clearly linked to the warming of the planet. “Secondly, there’s been a real pick up, not just in NZ but globally in political conversations regarding action on decarbonisation and a recognition that if we add up all the current policies in the world we are still some way off being on a 1.5°C trajectory – there’s a lot to do.” Bascand says people should be getting excited about the purposeful distribution of capital into technological innovation. For example, he says we can’t just think about how we produce electricity, we have to think about how transport works, how industries use energy and how we can improve our agricultural emissions.
18 | ASSET 04 | 2021
Image caption – Pathfinder's John Berry (left) with Carey Church from Moneyworks.
John Berry “When deciding which companies we want to support in these areas we use a mix of our own financial analysts, our environmental scientist and external research. “Our investment team manages our portfolios, and are ultimately overseen by our investment committee and ethics committee.” They plan to keep Pathfinder’s investment process robust, researchbased and repeatable in terms of good returns. “We’re hugely ambitious about our vision of funding a lasting transition to a more ethical world and are just getting started.”
Another big achiever
Winners and highly commended Best Ethical Retail Investment Fund Provider • Winner: Harbour Asset Management • Highly commended: Pathfinder Asset Management • Judges’ comments: The judges were particularly impressed by Harbour’s strong research capability and analysis of Australian and NZ companies. They have demonstrated in-depth engagement with companies, with examples of how they have improved ESG performance. Finalists: AMP Capital, Booster, Mercer.
Best New Ethical Fund 2021
Best Ethical KiwiSaver Fund Provider
Best Ethical Financial Adviser
• Winner: Pathfinder Asset Management
• Winner: Pathfinder Asset Management
• Judges’ comments: Pathfinder has released several exciting new funds, including the ethical growth fund. The fund avoids investments in companies that cause harm, practises active ownership, but invests in companies with positive impacts, such as solar energy, mental health, women’s livelihoods and social housing.
• Judges’ comments: Pathfinder has raised the bar with its KiwiSaver funds, providing the public with opportunities to invest in sustainable themes such as renewable energy and access to water, and in impact companies that create social and environmental benefits.
• Winner: Dr Rodger Spiller, Money Matters • Judges’ comments: Rodger Spiller’s entry stood out for his strong research and thought leadership over many years. His approach is flexible and thorough to meet clients’ needs and aspirations.
Finalists: Booster, Generate, Mercer, Simplicity.
Finalists: Ethical Investing NZ, Rutherford Rede.
Finalists: Booster, Harbour, Mint.
Most Effective Investment Fund for Climate Action (no overall winner) • Winner: Climate Venture Capital Fund • Highly commended: New Zealand Green Investment Finance • Judges’ comments: There was a tie for this category. The judges were impressed by the potential of both of these funds but recognised they are both at an early stage in their development. So they have given two highly commended awards and look forward to their entries next year. The Climate Venture Capital Fund is a start-up fund that aims to accelerate the hugely important role of investment for climate solutions. The NZ GIF has a clear purpose and well-developed measures to assess the impact of investments. The judges look forward to seeing the fund become a catalyst for other investors as well as investing directly.
Best Impact Investment Fund • Winner: Community Finance • Highly commended: Impact Enterprise Fund • Judges’ comments: The judges recognised the track record in finance for community housing that preceded the formation of Community Finance. The Salvation Army Community Bond was an innovative offering to finance 128 houses and apartments in Auckland, including mainstream financing from Generate KiwiSaver. This provided a model for the launch of the Aotearoa Pledge aiming to raise $100 million for social housing. The Impact Enterprise has broken new ground as NZ’s first wholesale impact fund. They have put in place robust systems for finding prospective investments, working with them to help them become investible, and doing due diligence. They have put in the hard work to create a pipeline of prospects and are now building a strong portfolio. Finalists: Purpose Capital, Soul Capital.
Best Media Reporting on Ethical Investing • Winner: Rob Stock, Stuff • Highly commended: Deleted documentary, Stuff Circuit • Judges’ comments: Rob Stock has consistently provided excellent articles on ethical and responsible investment issues over many years. He has undertaken new research and provided fresh perspectives to enable readers to make informed decisions. The Deleted documentary by Stuff Circuit – The judges were impressed by the in-depth research and investigation, exposing the violations of the rights of Uyghur people. The documentarymakers were innovative in their multimedia treatment and their follow up on the role of NZ funds and companies. Finalists: Daniel Smith/Good Returns, John Berry in collaboration with Stuff.
WWW.GOODRETURNS.CO.NZ | 19
FEATURES | ADVISER PROFILE
Making money and making a difference Matthew Martin speaks to Rodger Spiller about being a forerunner of SRI education in New Zealand and his recent Mindful Money Award recognition.
A
fter just a few minutes of speaking to Rodger Spiller, you know you have come across a person whose brain is bursting with knowledge – so much so it’s hard to keep up. Softly spoken, modest, and intelligent Dr Rodger Spiller has been at the forefront of ethical and responsible investment for about 35 years – not just in New Zealand, but around the world. I say modest because I want to talk to him about his latest award (he’s had more than a few bouquets over the years) at the recent Mindful Money 20 | ASSET 04 | 2021
Awards where he was named the Best Ethical Financial Adviser 2021. “I’m extremely honoured,” he says. “I’m deeply grateful for the recognition of our work at Money Matters and thankful to the judges for their vote of confidence.” And that's about it, with the conversation quickly turning to how important the awards themselves are to an industry that’s changing from a twodimensional risk and reward system to a three-dimensional approach that factors in the impacts of investment.
‘I’m encouraged by the increasing number of ethical advisers in the field and the high number of entries to the awards’
‘In terms of delivering on that, we need quality advice that puts this forward as a way people can make money and make a difference ... but it is a critical journey ahead’
“Rodger Spiller’s entry stood out for his strong research and thought leadership over many years,” the award judges said. “His approach is flexible and thorough to meet clients’ needs and aspirations.” Spiller says the award highlights the importance of advice, and the positive impact of expert guidance that empowers clients to make money and make a difference – to themselves, their finances and the world. “I’m encouraged by the increasing number of ethical advisers in the field and the high number of entries to the awards,” he says. “My hope is that we will keep building the ethical investment advice profession together.” He says ethical investment is not just a “feel good” approach but one that could save the world – literally. “If we’re going to survive as a species we need to accelerate the move towards authentic ethical investment. “All investment has an impact, either positive or negative. It’s clear that traditional investment and ‘business as usual’ needs to transform in order to make the positive impact required. “What you do with your money really does matter,” he says. It was in his teenage years when Spiller says he wanted to make a positive impact on the world around him. And by age 13 he had figured out that money and business has a major influence on the way the world works – for better or often worse. “To me, having a positive impact on the world through encouraging good business was a logical strategy so I decided to study accounting and economics and learn the language of money.” He says while he was studying in the ‘70s the world was starting to change and New Zealand’s earliest ethical investors were beginning to emerge and were vocally responding to Nelson Mandela’s calls to divest from South Africa. “I found myself inspired by these pioneers and chose to focus my career on this new field.” Spiller completed his Bachelor of Commerce degree in 1983, winning the senior prize for a project on accounting
for corporate responsibility, and qualified as a Chartered Accountant. In 1988 he joined the Institute of Property Advisors and Consultants (IPAC) and took a leading role in providing research, training advisers and raising the quality and quantity of funds and advisers. As part of his role as executive director for IPAC (NZ), he initiated the first managed funds awards and created the syllabus and examinations for the financial planning industry association. In 1990, Spiller started his investment advisory firm Money Matters and was regularly featured as a financial adviser in the TV One series Money Doctor, on its Breakfast programme and as a financial columnist. Subsequently, he helped introduce New Zealand to the CFP qualification. He continued his ethical investment and business studies while also working in the financial advice industry and completed a Master of Commerce (first class) in 1990, and a PhD in 1999 – also winning the inaugural Good Returns Financial Planner of the Year Award in the same year. One could say he wrote the book about financial planning after publishing The Essential Guide to Financial Planning in New Zealand, in 2000. “Then, in 2002, as the official representative of New Zealand business at the World Summit for Sustainable Development, I found myself sitting just metres away from Nelson Mandela. “That was the moment I knew I’d come full circle.” Fast-forward to 2016, and the media scrutiny around KiwiSaver changed things fundamentally. In a September 2016 Sunday Star Times article titled “Rewarding Responsibility”, Martin Hawes explained how about 20 years ago he started to take an interest in “socially responsible investment (SRI)”. He generously acknowledged the pioneers in promoting this idea – “especially Dr Rodger Spiller, who at times was almost a lone voice”. To use Hawes’ words, in 2016, “Suddenly and quite spectacularly, the zeitgeist has changed, cluster bombs and tobacco are widely discussed and
SRI has become important.” Since then, more and more New Zealanders have awakened to the realities of their current investments and decided to invest more consciously in ethical investment funds. Fund managers and advisers have responded to this demand, so it’s not all doom and gloom. He says ethics is at the heart of professionalism and everyone in the industry should be trying to raise the bar. “A starting point could be to ‘do no harm’ or ‘minimise my negative impact’ of investment – but a lot of people do ignore it. “Unfortunately, there’s quite some way to go, especially around awareness and education.” He says in the early days, the industry had very little interest in ethical investment. “Most advisers and fund managers would roll their eyes and dismiss it but over time there has been increasing investor demand and willingness from fund managers to supply funds.” He says financial advisers should always be asking their clients how they want to reduce their investment impacts – awareness and education is a good place to start. “In terms of delivering on that, we need quality advice that puts this forward as a way people can make money and make a difference ... but it is a critical journey ahead.” A
Dr Rodger Spiller – career highlights
• Being New Zealand's first financial adviser to receive the Ethical Investment Certification symbol.
• Former member of the Securities Commission (now the Financial Markets Authority).
• A founding member and executive director of NZ Businesses for Social Responsibility (now the Sustainable Business Network).
• Serving on the Nominating Committee for the Guardians of the New Zealand Superannuation Fund.
• Executive director of the NZ Business Council for Sustainable Development (now the Sustainable Business Council).
• Founding director of Transparency International (NZ).
• Serving as a director and chairman of the Association of Investment Advisers and Financial Planners (IAFP), the national professional association of advisers. • Representing New Zealand at the World Financial Planning Forum. • Bringing the Ethical Investment Association Australasia (now the Responsible Investment Association Australasia – RIAA) to New Zealand and being a director for over 10 years.
• Representing New Zealand business at the UN World Summit on Sustainable Development in 2002.
• Director of Oxfam (NZ).
• Member of the technical working group for the Sustainable Finance Forum. WWW.GOODRETURNS.CO.NZ | 21
FEATURES | GIVING
Is giving the new getting? Daniel Smith investigates philanthropy and the interesting ways it can be incorporated into financial plans.
G
iving is on the rise. No longer is it the sole responsibility of the adviser to generate wealth, but also to find ways to allocate that wealth through gifts. Whether through charitable donations, trusts or investing on behalf of beneficiaries, philanthropic giving is on the rise. According to Liz Gibbs, head of philanthropy at Perpetual Guardian, it is important to understand the deeper meaning of philanthropy. 22 | ASSET 04 | 2021
“It is generosity. Usually, it means people donating money, but it can also include contributions of time, expertise, of engagement.” Gibbs’ work sees her managing over 600 charitable trusts and helping to distribute the funding generated by those trusts for charitable purposes. “One of our clients donated funds to build an online governance learning platform so that charities can help build their governance capability. It is not
always just giving grants, it is often giving access to knowledge and technology.” Importantly for Gibbs, is that philanthropy is becoming a key part of financial conversations. “Philanthropy as a part of estate planning is certainly on the rise. Philanthropy NZ have done research which shows that between 2004 and 2014 the value of philanthropy in New Zealand rose from $1.4 billion to $2.65 billion. Since then we have seen that continue to increase.”
‘It is generosity. Usually, it means people donating money, but it can also include contributions of time, expertise, of engagement’ Liz Gibbs Gibbs says that for advisers who have clients that are interested in getting involved in philanthropy, it can be a great opportunity to bring their family into their decision making. “Understand what your clients are interested in. Often it is not just discussing that with your clients but also with their children.” Tyler Ward, trust manager charities at Trustees Executors, also believes that it is important for New Zealanders to learn how to properly donate their money. “Here in New Zealand we are one of the most generous countries per capita, and that is only going to rise in a range of different ways.” Trustees Executors have launched a new foundation to increase the efficiency of the administration work that goes on behind the scenes at charities. Ward says: “The purpose of the Trustees Executors’ Charitable Foundation is to provide a vehicle that will make philanthropy more efficient, and reduce the administration burden on charitable foundations. “By making giving simpler, more of the funds available go into benefitting the community.” Ward believes that education can reshape the way that New Zealanders think about philanthropy. “A lot of people believe that in order to [support] charities you need to be rich. But with philanthropy you can help fund organisations [in many ways] every little bit counts.” According to Ward, trustee organisations have a key part to
play in aiding clients to engage with philanthropy. “We need to get an understanding of what the client wants to support, and the charitable outcomes that the individual wants to achieve. There is the ability to set up a charitable trust which is a good option if somebody has a reasonably large amount of funds they are wishing to put aside. “If they want to give after their lifetime then we can have a conversation [about] setting that up as part of their estate planning.” Financial advisers, who are intimately familiar with their clients’ accounts and personal values are in the best position to bring about the giving conversation. “It is all around having a talk with clients around what they are hoping to achieve now, and what they want their legacy to look like,” Ward says. “What is really important to them is a great place to start the conversation.” It’s not just the trustee companies that are discovering novel ways to help their clients engage with philanthropy, but advisers too. Nigel Tate has helped his clients bequeath large sums of money to charity through an alteration in the way that their insurance is set up. “I have a couple of clients that have had family members personally impacted by various ailments and wanted to donate to charities helping people who were going through a similar thing. “When these clients got to a stage where they no longer needed life insurance for themselves, knowing their passion and involvement in these charities I spoke to them about transferring the ownership of their life insurance over to the charities. “The client continues to pay premiums and when they pass away there is a decent payout to the charity.” Tate has helped many of his clients give in this way and the families of all of them have been happy with the result. “Every one of them was a personal experience. One client told me: ‘I had never even thought about this. I could never have afforded to donate this amount of money to the charity had I not used insurance to do it.’” Fund managers, with their access to large amounts of capital can get creative with the ways that they engage in philanthropy. Just ask George Carter, managing director at Nikko Asset Management who has worked with his team to find a way to utilise an investment fund to promote real change. “For a fund manager trying to do good, I believe it is quite conceivable that
‘Here in New Zealand we are one of the most generous countries per capita, and that is only going to rise in a range of different ways’ Tyler Ward people might want to utilise some of their assets not just to generate returns for themselves, but to generate an outcome that has an impact outside of the realm of finances. “We are launching a fund where people will be able to use their capital to do a particular philanthropic good rather than any financial return.” That philanthropic goal is tackling the global problem of human trafficking in Southeast Asia. Nikko have teamed up with LIFT International and Tearfund NZ to set up a permanent income stream to engage head-on in a fight against modern day slavery. Carter explains: “It is a PIE fund. Investors will put their capital into the fund and we will put that capital into investments, predominately bonds and cash but with some equities. Any return that is then generated from those assets will be donated to LIFT International whose explicit goal is to work for the prevention, detection and prosecution of those involved in human trafficking and modern day slavery.” The goals of the fund are bold. They began with Carter considering what was the best way for the financial services industry to do good in the world. “Our skillset is that we are really good at managing money. So why not utilise these skills … for commercial purposes, for philanthropic purposes. If people are giving from their core skillset back into society, the results can be tremendous.” A WWW.GOODRETURNS.CO.NZ | 23
FEATURES | SPONSORED CONTENT
The vast wealth transfer
A
Estate planning, philanthropy and the impending vast wealth transfer: What financial advisers need to know, writes Patrick Gamble, CEO, Perpetual Guardian Group.
lot has changed in the legislative landscape of trusts in recent months, and many of the changes directly affect those providing financial advice and their clients. Here we present the mustknow information for financial advisers navigating the altered terrain:
Do financial advisers have an obligation to introduce estate planning in discussions with clients? Legally, no – but there is a strong case that any substantial conversation about long-term financial planning should include estate planning. This goes to people’s objectives for their retirement, how they want their loved ones to be cared for, and whether they want to 24 | ASSET 04 | 2021
leave a legacy beyond their family, such as through a charitable trust. Certainly, anyone who is seeking the services of a financial adviser will likely be in a position to need a Will (if they don’t already have one); whether they are buying a risk insurance policy such as life insurance, taking out a home loan, or simply have $15,000 or more in assets, including KiwiSaver, a Will is an essential document to spell out their wishes and spare their loved ones the trauma and expense of going through the courts in the event of intestacy. It is also crucial for those with children, addressing issues of guardianship. If someone dies intestate, the law determines who will inherit their property and possessions, and the size of the estate will need to be determined, an administrator chosen, and court
‘Given the cost of indemnity insurance, along with the other risks arising in the new legislative environment, is it worth continuing as trustee?’ authority for administration obtained before the estate can be administered and distributed. This can be a timeconsuming and costly process which is avoidable if a Will is in place.
These days, Wills can be made, updated and stored digitally if clients prefer and, typically, the earlier in life one is made, the quicker and more straightforward it is. Then it is just a matter of updating the document in line with major life changes such as marriage, the birth of a child, or the sale or purchase of a significant asset.
What should be top of mind for advisers in relation to the new Trusts Act 2019? The purposes of the new Trusts Act 2019, which came into effect in January, include making trust law more accessible and clarifying and simplifying core trust principles and essential obligations for trustees. Many financial advisers in New Zealand, along with lawyers and accountants, serve as professional trustees for clients with family trusts, and the new Act makes executing that role more onerous with new requirements for more accountability from trustees and increased costs of running a trust, because administration now requires more attention. If you are a professional trustee you need to ask yourself some important questions: •
•
Is the cost of administering this trust in balance with the benefit to the beneficiaries of having the trust? (Not every trust should continue as-is; some should be wound up and others re-settled.) Given the cost of indemnity insurance, along with the other risks arising in the new legislative environment, is it worth continuing as trustee?
•
Is your business sufficiently resourced to meet the increased obligations?
•
How are you managing the new requirements for trustees in relation to proactive disclosure of information to beneficiaries? Do you have the capacity to do this in a timely manner?
What is the best way to address philanthropy in financial advice conversations? It is a good idea to discuss philanthropy as part of any estate planning conversation, to understand whether a client would like to make charitable
bequests in their Will or go a step further and set up a charitable trust, which can be done during their lifetime or in accordance with specifications made in their Will, and actioned during the execution process. The former is straightforward, completed as part of the distribution of the estate. The latter will require a more in-depth understanding of the client’s philanthropic intent; which specific causes or organisations they wish to support or name as beneficiaries; and how they wish the trust to be structured and managed. As with family trusts, it is strongly recommended that charitable trusts have a professional trustee who is experienced and fully conversant with their obligations under the Trusts Act 2019, and who also has experience in managing the grant application process and distributions from charitable trusts, which in the case of large trusts can constitute substantial amounts over time. The advantage of using a professional trustee experienced in philanthropic management, such as Perpetual Guardian (New Zealand’s largest philanthropic entity by volume), is that we have the knowledge and relationships to ensure every philanthropic dollar has maximum impact in its sector, and trusts are properly structured and managed so investment holdings are grown and leveraged to full effect over time.
How does the impending wealth transfer from baby boomers to their inheritors affect the financial planning picture? Globally, the distribution of wealth from the baby boom generation (roughly, those born between 1946 and 1964) represents the greatest wealth transfer in history. New Zealand is no different, with significant wealth being held by boomers, much of it in residential property. Statistics NZ data shows nearly twothirds of household net wealth was in the hands of those aged 55+ in mid-2018 (with relative increases in house prices, this will have grown considerably over the past three years). A sound estimate made in recent business reporting is that this generation will transfer around $1.15 trillion in wealth (including through charitable trusts, donations and bequests), in today’s dollars, over the next two decades. The oldest baby boomers are now approaching their later 70s, so some of
‘Statistics NZ data shows nearly twothirds of household net wealth was in the hands of those aged 55+ in mid-2018’ the projected wealth transfer has already begun, including via “the bank of mum and dad”, wherein cashed-up older parents are helping their adult children fund their own property purchases. Based on Perpetual Guardian’s estimate that New Zealand has between 350,000 and 500,000 family trusts, it is safe to calculate that a large proportion, perhaps even a majority, of baby boomer wealth is held in trust. The Trusts Act 2019, with its emphasis on trustee obligations, beneficiary disclosure and mandatory administration, will have had a nullifying effect on many of these trusts, which now won’t be managed in compliance with legislative requirements. More importantly, all financial advisory conversations with those 55+ – or whose parents or grandparents are in this cohort, and who may be inheritors – must consider the ramifications of wealth transfer and make a clear, adaptable plan for how wealth will be distributed to the next generations. This should include a discussion as to whether the client wishes to make a direct, unimpeded transfer of wealth upon their death, or whether they would like to place some constraints on financial distribution, such as through an independent professional trustee who can supervise the dissemination of wealth more gradually. As we all know, families can be complicated, especially where money is concerned, and for some families, a wholesale distribution of potentially significant wealth directly to a handful of individuals might not be desirable. Don’t hesitate to talk this through with clients or to solicit the advice of a professional trustee where necessary. A Patrick Gamble was appointed CEO of Perpetual Guardian in 2020. Previously, as Complectus Group General Counsel, he spent more than six years building the group through a series of acquisitions and integrations and fronting the group’s relationships with investors, regulators, government, advisors and media. Earlier in his career Patrick practised law at Russell McVeagh and worked for international law firms in Dublin and Malta, specialising in corporate and commercial law, capital markets, joint ventures and shareholder arrangements. WWW.GOODRETURNS.CO.NZ | 25
REGULARS | PRACTICE MANAGEMENT
Weird exclusions and what to do about them Russell Hutchinson highlights some of the strange exclusions within life insurance products and what action advisers can take with insurers.
T
here are some very weird exclusions out there. In this consumer-focused age there is no reason merely to gloss over those and accept, with a shrug, that “the life insurance industry is strange like that”. We can challenge some of these ideas. Obviously, insurers can only be expected to insure events that are risks that have certain characteristics – they must be rare enough to be insurable, they must be sufficiently undesirable that the sum insured does not present a moral hazard to sane people, they must be uncertain, and in the future. 26 | ASSET 04 | 2021
I value the insurance industry and I think underwriting and appropriately pricing risks is important. But even so, we have some surprising exclusions.
Exclusion or eligibility criteria? Some of them are not really exclusions, they are really eligibility criteria which were moved from the application into the policy document in a misguided attempt to make application (usually by phone, online, or in a bank) easier. The result was just to make the contract confusing and make some claims a bit of a lottery. For example, found in several old credit
‘But if you were the unlucky recipient of blood products contaminated with HIV you probably have no idea within those timeframes’
‘On the other hand, eat five chocolate cakes for breakfast every day, or smoke a couple of packets of cigarettes a day and they will pay out your claim’ insurance contracts is the exclusion of any event or condition happening to you whilst you are living or working outside New Zealand. This should have been a question in the application – it is a common one in applications for fully underwritten cover – and the product priced appropriately. Some exclusions made benefits procedurally very hard to claim – you are welcome to refer to the requirements for a claim under medical misadventure or for HIV infection as a result of accidental infection due to a blood transfusion in a hospital. Most require that the accident is reported within 30 days and an initial test for HIV is conducted within seven days, and then another one after about six months. But if you were the unlucky recipient of blood products contaminated with HIV you probably have no idea within those timeframes. I suppose a claim is possible, they must simply be very, very, difficult to obtain under those narrow circumstances.
’Criminal act’ exclusion Exclusions for involvement in criminal acts are common among a certain set of contracts – but again most fully underwritten insurance does not have these restrictions. I have been asked many times whether drink driving is a criminal act – and the short answer is yes, for most drink driving offences it is. It is easy to imagine a circumstance in which an ordinary person may drive over the limit – even just once in a lifetime – and suffer an injury, or even death. Life cover which excludes this is not much good. After all, a predictable outcome is what we are looking for with insurance. Some go further and make clear that claims arising even from “alcohol
usage or drug abuse” will be declined. That appears to require the insured to completely abstain from alcohol. I do not think such a contract can pass muster in the new conduct environment. To be fair, it is possible that no claim has ever been declined on that basis. But if we cannot rely on the policy document, what can we rely on for goodness sake? But what about that restriction for drug abuse? Is that okay? It presumes addiction is a choice, when most public health systems treat it as either a physical or a mental health problem. In fact, you would almost suspect that some documents have been written by some very judgmental people indeed. One excludes any form of temporary disability “in respect of an occurrence attributable either wholly or in part to: sexually transmitted diseases; or AIDS or infection by any HIV related virus; …” So, however unlucky you may be in love, catch something awful and they will not stand by you. On the other hand, eat five chocolate cakes for breakfast every day, or smoke a couple of packets of cigarettes a day and they will pay out your claim. That strikes me as odd – in fact when you consider heart disease, cancer, and diabetes (three leading killers) are very heavily influenced by behaviour. It also seems at odds with current thinking – the drive to have sex is, at least, entirely natural. Nicotine addiction is not. But I think we should cover both, subject to normal underwriting.
Activities of daily living Another one which was brought to my attention recently was a definition of activities of daily living. “The activities of daily living are specified to be the ability to perform
the following: bathing/showering; dressing/undressing; eating/drinking; using the toilet to maintain personal hygiene; getting in and out of bed, chair or wheelchair; or moving from place to place by walking, or a wheelchair or with a walking aid.” The fact that you are not considered to have fulfilled the last one of these if you can still get about using a wheelchair suggests that a very high bar is being set. In fact, it seems to me to be something of a given that if you cannot even use a wheelchair then you will struggle to achieve bathing and dressing. Even more baffling is that this company has another product in which needing to use a wheelchair is counted as fulfilling the requirement.
What can you do about all this? The first thing is – call them out. When you see wording you think does not make sense, make a complaint. Ask for an explanation. Get the explanation in writing. Do not settle for a verbal reassurance that the policy document says one thing and claims payments are more generous. They probably are – most insurers I know are usually more generous than their wordings suggest – it’s just that a client cannot absolutely rely on that generosity. Nor should they have to. Insurance should create certain outcomes for people. Lastly, remember that buying cover where the wordings are flawed in this way creates an exposure because there are clearly other products without these weird limitations. A Russell Hutchinson is director of Chatswood Consulting and Quality Product Research, which operates Quotemonster. WWW.GOODRETURNS.CO.NZ | 27
FEATURES | PRACTICE MANAGEMENT
10 top productivity tips For the past two years, one of nib NZ’s team of adviser partner managers Stu Crowther has been sending out weekly tips to help advisers grow their businesses and look after their clients. Crowther’s 'Tip of the Week' includes everything from sales and product tips to industry and IT tips. Listed below are his top 10 tips for advisers.
Tip 1: Use an activity calculator. How much time do you need to spend on finding new clients to achieve your financial goals? The amount a commission-based insurance adviser earns is directly linked to the number of people they see. This includes phone calls, interviews and meetings. The more people they see, the more they earn. So how many people do you need to see or talk to each week to obtain your financial goals? The activity calculator is where you input some of the most important variables and it works out what your required activity should be. The example below is based on achieving an annual income of $120,000 where an adviser would input variables such as annual leave, commission rates and sales completion rates. Once all the variables are in it produces a report outlining how much time you will need to spend on finding and securing new clients – such as the number of calls a day and average sales targets. It can be a useful reminder of your daily and weekly goals and how much time you need to invest in your clients.
28 | ASSET 04 | 2021
ACTIVITY TARGETS To achieve income of
$120,000
per year
You need to submit
$133,333
of annual premium income (API)
Which means you need to issue
$100,000
of API per year
which is
$2,174
API per year
Based on an average sale of you need to submit OR
$1,500 $89 2
API sales per year sale(s) per year
Which means you have to see and you have to make
4 8 or
new people per week phone calls per week to new people
2
NEW calls per day
Targeted Earnings
$120,000
Per year
Commission Rate
120%
Percentage of API
Annual Leave
5
Weeks
Stat Holidays
1
Week
Appointments Strike Rate
50%
Number of people seen to get a sale
Phone Call Strike Rate
50%
Phone calls that turn into appointments
Average Sale
$1,500
Per policy
New Business Completion Rate
75%
Props submitted vs completed
Kids Cover
FREE
*
For the health problems that can’t be fixed with a plaster, we’re here to help
KIDS COVERED FREE FOR A YEAR* Health insurance is a great way to make sure that the health of your clients’ kids is protected. With nib’s range of cover options, your clients will be able to access the healthcare their kids need, when they need it. For a limited time, with every adult covered by a new Ultimate or Easy Health policy before 31 October 2021, a kid is covered FREE for a year for the Base Cover! This offer is exclusively through nibAPPLY and applications must be submitted before 31 October 2021.
*One kid will receive 12 months free base cover with each adult policy owner insured on the same policy – applicable when you sign up to Easy Health, Ultimate Health or Ultimate Health Max. A “Kid” is a new member of nib and under the age of 21 years old. Usual underwriting terms apply. Terms and conditions apply. Please visit nibadviser.co.nz for details. Offer ends 31 October 2021.
WWW.GOODRETURNS.CO.NZ | 29
FEATURES | SPONSORED CONTENT
Tip 2: Six reasons your client needs health insurance.
Less worry – reducing waiting times can reduce worry time for clients and family.
Greater choice – clients can choose who, when and where they have their treatment.
Reduce lost income – poor health could result in time off work and lost income.
Faster access to treatment – this means less waiting time and reduces deterioration, secondary effects and emotional impacts.
Tip 3: Master the silent close. You, as the adviser, provide value to your clients by leveraging your smarts. You do this by talking about how the client solves their problems and what might happen if they don’t follow your advice. But sometimes, the need to sound informed can lead to overtalking. A fundamental technique for closing is to be “interested” instead of “interesting”.
Tip 4: Get the best out of Quotemonster.
Tip 5: Keytruda – the great Pharmac U-turn. Keytruda is used in the treatment of lung cancer, melanoma, brain and stomach cancers. Pharmac had fully intended to fund the medicine but changed its mind due to the cost. Lung cancer kills about 1,800 people a year in New Zealand – more than breast cancer, prostate cancer and
Increased certainly and confidence about the future – your clients know they have more access to support, treatment and health innovations.
Access to leading health treatments – your clients can access previously unaffordable treatments.
During the sales process talk less and listen more – ask open-ended questions that invite detail, stop talking and allow several seconds of silence. This is the silent close and it allows the client to make their buying decision and communicates your confidence by not trying to prove yourself.
Quotemonster is a great platform for advisers to compare products. When bundling products on Quotemonster, it only quotes insurers that offer all products. If you prefer
melanoma combined – but patients and their advocates had hoped help was on its way. Pharmac was concerned about rising drug prices worldwide in the Covid-19 pandemic and that it could not commit to funding the drug but hoped to in the future. This decision has potentially left a lot of people in limbo both financially and emotionally because the drug could
‘A fundamental technique for closing is to be “interested” instead of “interesting”’
to use a specialist health insurer in all your quotes – go into your settings, change the default health provider to a specialist provider offering multiple health products.
have potentially helped at least 1,400 patients a year. Keytruda can be the difference between life and death and can cost up to $85,000 a year. What’s the best way to not have to rely on Pharmac? The answer is private health insurance that has a good amount of non-Pharmac coverage.
Source – https://www.stuff.co.nz/national/health/124493924/pharmac-saving-money-at-the-expense-of-kiwis-health?
30 | ASSET 04 | 2021
Tip 6: Educate clients about colonoscopies.
If early detection is the key to survival can you afford to wait two to three months? There is a financial cost to going private but that’s where health insurance kicks in. Under nib Ultimate Health a client can claim a colonoscopy on our major diagnostics benefit (subject to an excess) or under our specialist option (without excess).
‘If early detection is the key to survival can you afford to wait two to three months?’
In 1999 the Minister of Health had to instruct Pharmac to fund Interferon for MS patients as New Zealand was one of only two countries not funding it. In 2009 the Prime Minister funded Herceptin for breast cancer patients through the Ministry of Health, circumventing Pharmac. Both Herceptin and Interferon were funded after high-profile lobbying campaigns by patients and both medicines were widely funded globally. Pharmac claimed the campaigns were being funded by the pharmaceutical industry (they were not). A recent OECD survey comparing investment in medicines as a proportion
of the health budget omitted Pharmac as it was off the bottom of their scale. Despite New Zealand’s comparable wealth on a GDP per capita basis, it funds between two and 10 times fewer modern medicines than our OECD peers. A total of 110 recommended medicines have been waiting on average for almost five years on the list, and are still to be funded. The medicines “strategic framework” has officially lapsed and New Zealand has never had a written medicines policy, unlike other OECD nations. As I said earlier – what’s the best way to avoid relying on Pharmac?
Tip 8: Mix and match to suit your client’s needs.
Different family members have different needs and budget requirements. For example, nib’s Ultimate Health and Ultimate Health Max let you mix and
match products, excess options and add-ons, as do many other policies. This can also tie in with your use of Quotemonster.
Tip 9: Mastering Zoom.
We live in a world where video calls are now the norm. You can share your screen with your customer and they can fill in applications and you can record meetings. At nib we use Zoom a lot. Zoom has some great functionality that makes an adviser’s life a lot easier. These include a remote function that gives clients control over your screen.
This is great when using nibAPPLY. It means the clients can complete the application on their own. You can even leave them to it and go make a cup of tea! Use the record function. This is great for compliance and you can save the recording in your client’s files. This also works well in conjunction with the remote function. These functions cost about $15 per month.
Tip 10: Encourage your clients to insure their children.
It’s quite cheap for great peace of mind. A sick child can have a huge impact on the family – emotionally and financially. What if a parent has to take unpaid time off work to look after a sick child? What about the emotional toll?
At least 75% of Kiwi parents are more mindful of their family’s physical health as a result of Covid-19. At nib until the end of October, with every adult covered under an Ultimate Health or an Easy Health policy, a child is covered for free for a year for the base cover. A
The key to surviving bowel cancer is early detection and the best way to detect it is by doing a colonoscopy. You can get a colonoscopy free via the public system or at a private hospital where it will cost. Whilst the public system is free there is a cost – time.
Tip 7: Help clients understand Pharmac. Malcolm Mulholland, the chairman of Patient Voice Aotearoa penned an article for Stuff in March this year (see previous link) where he pointed out that the drugs Interferon and Herceptin were both funded after campaigns by patients. He also mentioned the following in the same article. New Zealand takes 2.5 times as long as other OECD countries to fund modern medicines. More than 100 medicines have been on the waiting list for up to five years.
WWW.GOODRETURNS.CO.NZ | 31
REGULARS | INVESTMENT COMMENTARY
Are KiwiSaver managers investing members’ funds successfully? David Van Schaardenburg shares the results of his research study examining investment returns success across the KiwiSaver industry.
A
year ago I completed a research study, the first of its type, which examined the success across the whole KiwiSaver industry in investment returns terms. The test was: “Are KiwiSaver fund managers achieving returns (pre-tax, after fees) for their KiwiSavers’ fund above the market return benchmarks they set for that fund?” This test aligns with the most common key fund screening criteria used by investment advisers to select funds for their clients – are fund returns exceeding their return benchmark, after manager fees? In three decades of funds management I have never seen the reason why an adviser would advocate a fund manager where there wasn’t evidence that they could beat their return benchmark. My return test is applied to all KiwiSaver funds on the same basis whether they are low fee or high fee, active or passive management styles. In doing so it avoids the debate on fee levels and the philosophy behind how KiwiSaver fund managers manage client funds. Twelve months ago, using FMAsourced data, my test was applied across the entire KiwiSaver fund industry pre-tax, after fees for the year return period to March 31, 2020. The outcomes from this initial assessment were unfortunately pretty underwhelming. A year on into the pandemic recovery, using the most recent data to March 31, 32 | ASSET 04 | 2021
BY DAVID VAN SCHAARDENBURG
2021, have KiwiSaver fund managers improved on their delivery of “better than benchmark” investment outcomes to their members?
It’s important KiwiSaver fund managers improve investment outcomes for members Most of the public debate on KiwiSaver has centred on topics like fee levels, who runs the default funds, how to access low cost advice – yet very little debate has been on investment success displayed by KiwiSaver fund managers. To date investment excellence has been promoted via relatively simple advertisements of past returns or ranking within a broad KiwiSaver fund group. However, I have yet to see any advertising of KiwiSaver “investment success” – ie our fund returns have beaten the fund’s return benchmark over the last five years by xx%. Easy to know why this hasn’t happened – it’s harder to beat your return benchmark over medium term periods than beating a selection of your peers. Such analyses become increasingly important as the industry and diversity of options for KiwiSaver investors grow as does the quantum of New Zealand household wealth that is under the management of the KiwiSaver managers. The growing importance of KiwiSaver can be seen when comparing data at March 31, 2020 to March 31, 2021.
•
The number of KiwiSaver funds on offer have grown by near 20% from 255 funds to 305 funds.
•
The number of funds with a five year return history has expanded from 163 to 201 funds.
•
Annualised fund manager revenues have grown from $540 million to $775 million.
•
Dollar-weighted average annual fees have grown from 0.85% to 0.93%.
•
KiwiSaver funds under management have grown by 38% from $61 billion to $84 billion.
The latter sum I expect to grow by an average $10 to $15 billion each year over the next five years. So by 2026 the KiwiSaver industry should have around $150 billion under management. Extracting an extra 0.5% of fund performance each year through superior management of that sum would equate to another $750 million in added wealth each year into the accounts of KiwiSaver members. No small beer! Surprising to me in the above figures was the rise in weighted average fees over the last year, especially given the consumer and regulatory pressure on KiwiSaver managers to reduce their fees. It appears that much of the reason for that increase is the material rise in the proportion of KiwiSaver members
‘Comparing March 2020 to March 2021, the proportion invested through KiwiSaver growth and aggressive growth funds of the industry total rose from 32.5% to c.44%’
‘… very little debate has been on investment success displayed by KiwiSaver fund managers’ investing through growth funds as well as their substantially better accumulated returns from growth funds over the last year versus other fund types. This is good news for the fund industry as growth fund fees tend to be higher than less risky fund categories. Comparing March 2020 to March 2021, the proportion invested through KiwiSaver growth and aggressive growth funds of the industry total rose from 32.5% to c.44%.
What has been the KiwiSaver industry’s track record of “investment success”? When I first completed this study a year ago, March 31 was near the depth of the Covid pandemic-derived sharemarket rout. So no surprise there was a wide range of returns (pre-tax, after fees) for the 240 KiwiSaver funds during the year to March 31, 2020 spanning from +19% to -39% with an unweighted average of -2.4%. Disappointingly, of the 240 KiwiSaver fund options in the FMA database in the one year to March 2020 (pre-tax, after fees): •
only 75 KiwiSaver funds (or 31%) achieved a better return than their return benchmark (set by their KiwiSaver fund manager)
•
only 66 KiwiSaver funds (28%) delivered a higher fund return
to their members than the fund fees charged (ie KiwiSaver members made more money in the fund than its KiwiSaver fund manager) •
89 KiwiSaver funds (37%) had a positive return.
What was more disappointing was the average KiwiSaver fund return was below the average fund performance benchmark (“market index”) return of by 0.7% on average.
Have “investment success” rates improved in the latest 12 months to March 31, 2021? Coming off a depressed base at March 31, 2020 the returns for most KiwiSaver funds have been materially boosted in absolute terms by the NZ sharemarket rising 29% and global sharemarkets by 31% (NZ dollar terms). Across the 264 KiwiSaver funds ($80 billion in funds at year end) with at least a 12 month return history pre-tax, after fees:
So it’s interesting to see that in such a strong return year from sharemarkets, of the 264 KiwiSaver funds: •
145 KiwiSaver funds (or 55%) achieved a better return than their return benchmark (set by their KiwiSaver fund manager)
•
248 KiwiSaver funds (94%) delivered a higher fund return to their members than the fund fees charged (ie KiwiSaver members made more money in the fund than its KiwiSaver fund manager)
•
260 KiwiSaver funds (98.5%) had a positive return.
•
the range of returns varied from +107% to -6% with an unweighted average of 22.4%
•
the weighted return average was 21.5%
Across the industry the average fund versus benchmark performance (pre-tax, after fees) was 0.84% of assets with the collective total outperformance adding up to $1.1 billion (pre-tax) to member accounts. This is very impressive. It was also a win year for active versus passive KiwiSaver fund managers with the former group’s funds tending to consistently beat their return benchmarks after fees while the notable passive (index) managers modestly underperforming their benchmarks typically in line with the level of their fees.
•
KiwiSaver member investment returns added up to $18 billion.
Are KiwiSaver managers “investing successfully”?
This is a huge positive turnaround from the unweighted average KiwiSaver fund returns in 2020 of -2.4% and a collective loss across all KiwiSaver members of $821 million. However, have the KiwiSaver managers done better than their return benchmarks? Most fund managers will tell you that it’s hard for fund returns to keep up with a strongly rising market due to cash and expense drags.
Past performance especially over short periods has its limitations as to its relevance for the future. However when you look at the last 12 months to answer my original question: “Are KiwiSaver managers investing members’ funds successfully?” Then the answer must be a resounding “YES”. A David van Schaardenburg is an independent investment analyst. WWW.GOODRETURNS.CO.NZ | 33
TOP 10
As usual it has been a busy month on Good Returns. Here is a list of the top 10 most read stories over recent weeks.
01 First zero fee KiwiSaver fund arrives [UPDATED] NZ Funds, often considered one of the more expensive managers in the New Zealand market has launched a zero fee KiwiSaver fund which will be solely distributed through financial advisers.
02 New CEO for the FMA The Financial Markets Authority has announced the appointment of an experienced international regulator to take over from Rob Everett who leaves at the end of October.
03 [OBITUARY] Highly respected adviser passes on Admired for his intense loyalty, honesty, love of family, friends and golf, well-known insurance adviser Steve Richens has passed away suddenly at the age of 66.
04 Tereora drives off from life insurance Partners Life chief operating officer Nadine Tereora has left the business after nine months to take up a CEO role.
05 How many Kiwis has KiwiSaver saved? What do we need to do to make our good retirement scheme great?
06 KiwiSaver funds soar, non-contributors still a worry More than 1.2 million KiwiSaver members did not invest in the scheme in the year to March 31, showing that while KiwiSaver has hit new heights in funds under management, there are big opportunities for providers and advisers.
07 Lifetime acquires significant Auckland advice group Christchurch-based Lifetime Group has done a deal to acquire the One50 Group.
08 Measuring adviser wellbeing in NZ Research into the mental health and wellbeing of financial advisers in Australia showed some surprising findings. A similar survey has been launched in New Zealand and Good Returns is encouraging as many advisers as possible to take part.
09 Trusted Adviser status defended after FoxPlan censure Questions have been raised about the Financial Advice NZ Trusted Adviser status of three owners of FoxPlan after the company was censured by the FMA.
10 [The Wrap] KiwiSaver for free who would have thought of that? And who would have thought the first manager to come out with a zero fee balanced fund would be NZ Funds?
Keep up with the news at
GOODRETURNS.CO.NZ
34 | ASSET 04 | 2021
The most rewarding returns you’ll ever get.
Invest in our Freedom Fund and help stop human trafficking
The Nikko AM Freedom Fund lets you put your idle capital to work to help end modern slavery and deliver returns beyond measure.
Set your capital free 100% of the investment returns generated by the Fund, along with our management fee, is donated directly to the Tearfund charity – an organisation committed to fighting poverty and injustice. There are no fees or charges for investing in the Fund and you can withdraw your money at any time.
Invest in freedom at nikkoam.co.nz/freedom
Nikko Asset Management New Zealand Limited (Company No. 606057, FSP22562) is a licensed Investment Manager. This material has been prepared without taking into account a potential investor’s objectives, financial situation or needs and is not intended to constitute personal financial advice, and must not be relied on as such. The Product Disclosure Statement is available on our website: www.nikkoam.co.nz.
WWW.GOODRETURNS.CO.NZ | 35
Join us to obtain these benefits: - weekly ‘Bring in the Experts’ webinar series - liability programme for members including professional indemnity insurance - guidelines for disclosure statements - regional roadshows & networking - obtain the Trusted Adviser mark - personal CPD recording programme - and much more...
JOIN Financial Advice NZ Your Professional Body We are your professional body, here to help you. Please visit us online, or contact us directly info@financialadvice.nz | 0800 432 101
www.financialadvice.nz