ASSET Autumn 24: KiwiSaver members need you

Paul Brownsey: Treading a

Target Maturity Bond Funds: The Next Evolution for New Zealand Bond Investors

After years of languishing under the effects of central bank policies that kept yields low, fixed interest is back as an attractive investment category. The onset of inflation and subsequent measures to curb it have led to higher interest rates, sparking renewed interest among investors. Yet, with these higher rates come more pronounced taxation concerns.

This article delves into the benefits of target maturity PIE bond funds and examines their significance within the context of New Zealand’s current and potential future tax landscape.

A brief history of target maturity bond funds

A target maturity bond fund is a fixed interest fund that terminates, or matures, on a certain date. It’s comprised of bonds and other fixed interest instruments that typically mature around the target maturity date of the fund.

These funds are constructed to be akin to owning a direct bond that matures on that date and is subject to similar characteristics and risks, albeit diversified across a portfolio. These funds have a long history overseas, first invented in the 1990s, and investor demand has been such that the range of options has grown to offer a variety of risk and duration profiles.

In the international context the main benefits for investors have been to:

• manage cashflows,

• control duration,

• create annuity ladders,

• define specific risk profiles, and;

• achieve instant diversification.

All with ease of ownership and without the need to participate directly in the fixed interest market.

Written by Matthew Winton, Fixed Interest Portfolio Manager at Kernel

Relevance to New Zealand

The above benefits are equally applicable to New Zealand, but we should consider the important additional benefit of the PIE tax regime. Consider an investor facing a 39% tax rate directly investing in a single bond with a yield of 6% for one year. Their net return will be:

6% (1 – 39%) = 3.66%1

Yet if the same investor makes an investment into a PIE target date bond fund with a yield of 6% and a management fee of 0.50% their net after-tax return will be:

(6% - 0.5%) (1- 28%) = 3.96%1

As can be seen, the beneficial treatment of the PIE tax regime is hard to ignore. Notably, this fact is also highly relevant to all NZ fixed interest – for example open ended bond funds and cash funds. With the recent change to the trust tax rate joining the top RWT rate at 39%, investors across the board are increasingly seeking out the benefits of the PIE regime, with tax capped at 28%.

Furthermore, professional management of a target maturity date bond fund would likely involve ongoing optimisation of the portfolio. Thus, it would be more likely to achieve a higher running yield (before fees and tax) over time than a simple buy and hold to maturity strategy typically employed by a direct bond investor. Competent management of a target maturity fund would probably at least partially offset any fee charged and further enhance the additional aftertax returns enjoyed by higher rate investors.

1.Fair assumption that fund can maintain same yield as its hypotheticalproxy. Due to ongoing optimisation of the portfolio, it would be more likely to achieve a higher running yield.

Other tangible benefits

In New Zealand’s bond market, liquidity is a crucial factor for investors managing a portfolio of individual bonds. Implementing a portfolio of direct bonds often means navigating bid/offer spreads, brokerage fees, and constrained investment options on the day(s) of implementation. Additionally, as portfolios expand and investors aim to preserve their allocations, maintaining target asset weightings can become impractical due to high costs or availability issues.

A target maturity bond fund, especially one without entry and exit fees, simplifies these challenges, facilitating cost-effective portfolio management without the burdens of transaction cost. This approach streamlines portfolio rebalancing, making it more manageable and efficient.

Administrative ease is another significant benefit, particularly for managing smaller investments or servicing clients with less substantial portfolios. Opting for a diversified target maturity fund alleviates the complexities associated with securing cost-effective diversification and handling varying coupon schedules, often providing options for reinvesting earnings instead of receiving regular payouts.

Locking in a return

Lastly, many investors and advisors make direct bond investments as the gross final return is defined by the yield to maturity of a bond at the time of purchase. As maturity approaches, whatever has happened to the overall bond

market eventually becomes irrelevant and the yield at the time of investment is realised (subject of course to good credit being maintained). This can be a significant advantage over open ended bond funds especially for those with medium term goals or passive income needs.

A target maturity bond fund might fit neatly into certain portfolios, as the final returns will be correlated with the yield of the fund at the time of investment, and given its advantages, it offers a very compelling alternative to direct bond purchases.

Below outlines a few key differences, and benefits, between Kernel’s NZ Target Maturity Bond Funds, and direct bonds:

Introducing Kernel’s Fixed Interest Funds

Tax rate capped at 28%

Diversification from $1

Free of brokerage/ comissions Option to reinvest cashflows

Zero bid/offer spreads

This table shows a simplified example for illustrative purposes only.

We have recently expanded our fixed interest fund range to include the following funds: NZ Bond Fund

Exposure to New Zealand issued bonds, deposits and more. March 2027

Bond Fund

An accessible alternative to investing in individual bonds or income-generating assets maturing in March 2027. March 2029

Bond Fund

An accessible alternative to investing in individual bonds or income-generating assets maturing in March 2029. US Bond Fund

Exposure to the world’s biggest bond market, hedged to the New Zealand dollar.

Contents | ASSET Autumn

Advisers and KiwiSaver

How many KiwiSaver members have an independent financial adviser? ASSET went to managers to find out and discovered some interesting trends.

UP FRONT

FEATURES

Power in numbers

Travis Hamilton aims to spend 50% of his working hours actually giving advice to clients – rather than the industry average of nine per cent.

18 LOVE IT AND LIST IT

Jenny Ruth looks at the investment community’s response to the possibility of a public listing for Kiwibank

The latest from adviceland, including an Auckland investment manager cleared of assault and two adviser groups tying the knot.

Comings and goings at Asteron, FNZ, Chubb, SBS Wealth and the FSC.

Out-going FSC chief executive Richard Klipin reflects on his wins and his thoughts on financial advice.

22 ADVISER PROFILE

Travis Hamilton aims to spend 50% of his working hours actually giving advice to clients – rather than the industry average of nine per cent

28 INVESTMENT

Find out how 16 asset classes have performed over time.

REGULARS

24 ADVISER WELLBEING

In the first in our series on adviser wellbeing we find advisers are managing stress better than they were two years ago but more support is needed for them to thrive.

26 INVESTMENT COMMENTARY

David van Schaardenburg: be a tortoise, not a hare when it comes to investing

30 PRACTICE MANAGEMENT

Russell Hutchinson looks at using KiwiSaver as insurance: the wisdom – or not – of hardship withdrawals

32 MORNINGSTAR DATA

Find out how hundreds of funds are performing

34 OUT AND ABOUT Wealthpoint conference

35 GOOD RETURNS TOP 10

Find out what advisers are reading at goodreturns.co.nz

It’s KiwiSaver’s time

In this issue, we ask Minister of Commerce Andrew Bayly why a full KiwiSaver review isn’t anywhere near the top of his todo list.

Also, we launch a new feature which we hope to do annually - looking at how much of the KiwiSaver funds under management is attached to an independent financial adviser. The results are on page 12 and may surprise you.

One of the stark contrasts is how some fund managers have embraced advice and have all their members receiving some sort of independent guidance. At the other end of the spectrum are those who essentially have no advice attached to their scheme.

What really stands out is that many of the biggest schemes, run by banks, have tens of thousands of members receiving no advice other than the tools they provide – which of course cannot be called independent advice.

Considering the top five managers, by funds under management, provide little advice arguably means members are at risk of not getting the best outcomes.

Out of the top five, Milford, is the outlier, with more than $1 billion under advice.

Hopefully when minister Andrew Bayly gets around to looking at KiwiSaver, he will address this issue.

Likewise, one would hope he doesn’t rely on what hears from his meetings with the big end of town, and will talk to

players across the industry.

The other trend which is emerging with KiwiSaver is that more advisers are embracing the savings scheme as part of their business.

An observation over the years is that many financial advisers do not see the scheme as a key part of their offering. Following the advent of the new regulations, which came into full effect just over a year ago, there has been a real change in the demographics of the financial-advice sector.

Many of the old hands have finally hung up their shingle, and new younger advisers are entering the industry.

They are much more enthusiastic about KiwiSaver, something which in many ways makes sense: they are younger - and so, too, is their client base.

This cohort considers KiwiSaver a significant part of their savings.

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Disclaimer

All articles in ASSET are for information purposes only, the content is intended to be of a general nature, does not take into account any person’s specific circumstances, and is not financial, legal, or other advice. It is recommended you seek advice from a suitable expert before taking any action in relation to anything contained in this magazine.

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.

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Any reproduction without prior written permission is strictly prohibited. ISSN 1175-9585

Investment manager cleared of assault

An Auckland investment and KiwiSaver manager charged with assault - following a fracas that left his neighbour with an injured eyehas been acquitted by a jury after pleading self-defence.

The judge refused an application for permanent name suppression, however the man’s lawyer has been given leave to appeal.

In the Auckland District Court, a jury heard how it had been almost a year since rising tensions between the two neighbours, involving windows overlooking the complainant’s property and a

screen overshadowing the investment manager’s garden, blew up.

On the evening of Good Friday last year, the investment manager had been playing the macarena loudly and repeatedly outside, and the neighbour sprayed the speaker with a hose. This prompted the investment manager to jump the fence and the two men began a physical fight, with the complainant’s wife spraying them both with a hose.

The investment manager landed blows to the neighbour’s head, but the complainant reciprocated and split the investment manager’s eye also.

After an hour of deliberations, the jury found

the investment manager not guilty of causing grievous bodily harm with intent to injure.

The day after the decision, defence lawyer John Munro applied for his client’s interim name suppression to be made permanent.

In rejecting the application, Judge Evangelos Thomas said the investment manager’s firm had temporarily suspended him and taken no disciplinary action pending the outcome of the case. He said an internal employment process would continue regardless of publication of the man’s name, and any suggestion he could lose his job was entirely speculative.

Likewise, any suggestion clients of the firm would leave was also speculative.

It'll be different this time: Asteron boss on Resolution deal

Asteron Life executive general manager Grant Willis is confident Resolution Life has learnt lessons from its purchase of AMP Life and won't repeat them again.

Willis says Resolution's proposed deal to acquire Asteron Life is very different to its first foray into New Zealand - when it bought AMP Life and put the business into run off.

Many advisers expressed their frustration about dealing with Resolution/AMP Life, particularly around communications and service levels.

Willis says the proposed Asteron deal is quite different: Resolution will be supporting Asteron's growth ambitions, is keeping the current management team (including Willis), and is not rebranding the business.

Resolution has acknowledged things didn't go that well with AMP, he says.

He also points out Resolution Life Australasia itself has changed, with a relatively new Australasian boss, Tim Tez, who has been in the role less than 18 months.

Tez and Willis have been out talking to staff and advisers about the deal. Willis says reaction has been mixed.

Around 70% of advisers have said there will be no change, around 20% are adopting a ‘wait and see’ approach, and the remainder don't think it is a great outcome. However, some of these advisers are now starting to see that a new owner could be good for Asteron Life.

Willis says it should be no surprise Suncorp has agreed to sell Asteron Life in New Zealand; the surprise, he says, is the acquirer.

From a Suncorp perspective, business units are often subject to strategic review. More importantly, the company had already sold its Australian life business and its bank, and was simplifying its business, concentrating on general insurance.

There were multiple potential suitors for Asteron Life, but Resolution prevailed. Willis’ message is there will be no change, other than accelerated growth.

"There's no suggestion it [the deal] is going to change the direction of Asteron," he says.

Willis says it is a good outcome for Asteron: it can now invest for growth, including around digitising its business and brand. With Suncorp as an owner, Asteron was not necessarily always

top of the list for new investment - but that changes with Resolution.

Even without the investment the company wanted, it had been growing successfully organically, while other life companies in New Zealand had sought growth through acquisition (most noticeably buying bank operations).

Willis says Resolution acknowledges the AMP Life sale had difficulties for advisers.

"This is quite different to AMP," he says: they are buying the Asteron shares and essentially buying a licensed entity that is on a successful growth trajectory.

The deal is still subject to regulatory approval and is expected to take about nine months to complete, including the regulatory requirements.

Once done, Resolution will be the second largest life insurer by annual premium income in New Zealand. A

GRANT

WILLIS

FNZ APPOINTS LOCAL EXECS

FNZ has appointed a chief executive and chief operating officer for its New Zealand operations.

The global platform business has appointed Jeremy Graham as its new chief executive for New Zealand, and Aroha Steele as the country’s new chief operating officer.

Announcing the new roles, the company says these appointments underscore "FNZ’s commitment to New Zealand as a strategically significant market, while continuing to promote regional talent within the business."

Graham originally joined the business in 2007; most recently, he was global head of talent, championing talent acquisition and development across all FNZ offices worldwide.

Between 2014 and 2021, he drove the growth of the FNZ’s software engineering capabilities, overseeing teams which have delivered multiple platforms across both European and Asia Pacific markets.

He takes on the role from interim New Zealand CEO Scott Webster, who will continue in his role as CEO, FNZ Securities.

Aroha Steele joined FNZ in 2018 and has held multiple leadership roles across the business, including head of production support APAC and head of solution centre Australia/New Zealand.

"Under her leadership, several significant operational initiatives have been successfully introduced as part of platform enhancement, implementation and migration," FNZ says.

OLD HAND IN NEW ROLE AT CHUBB

Well-known life insurance industry figure Peter Mensah is the new North Island regional manager at Chubb Life.

Mensah has been with Chubb Life for two and a half years and has more than 20 years of experience in the New Zealand insurance industry - with roles including National Sales Manager for Fidelity Life and Distribution Manager for PIC Insurance Brokers.

Chubb general manager distribution Chris Hand says Mensah is known for his experience, knowledge and passion, making him a valuable asset to the team.

"I know his expertise, and the vast relationships he holds, will be key to taking our support for North Island advisers to the next level.

"I look forward to working closely with Peter, alongside our South Island Regional Manager Mike Doherty and the wider team, as we continue to build on our valued partnership [with advisers]."

PARTNERS DISTRIBUTION BOSS JUMPS TO ASTERON

Tony Arthur has been appointed as new executive manager life distribution at Asteron Life.

Arthur moves to Suncorp New Zealand from his previous role leading Partners Life distribution, and, prior to this, senior executive roles at BNZ leading retail, marketing and distribution.

Asteron executive General Manager Life Grant Willis says Arthur has a wealth of experience in strategic distribution leadership roles in financial services, including the life insurance industry, and he takes the reins at a time Asteron continues to build on strong growth in new business.

"Tony has a deep understanding of the New Zealand life market, and, coupled with years of experience in senior executive roles in retail banking distribution and marketing, he has a solid track record in strategic execution and building relationships," says Willis.

He says Asteron is experiencing strong growth in new business market share, and he’s looking forward to seeing Arthur’s input build on this further.

"I know our advisers and distributions partners will value Tony’s knowledge and breadth of experience, and our team will, too.”

Arthur says he is looking forward to joining such a customer-centric business, “where delivering value is clearly at the heart of everything the team does.”

DAVID HAAK

PETER MENSAH

TONY ARTHUR

JEREMY GRAHAM

AROHA STEELE

THREE FROM KIWI WEALTH MOVE TO SBS WEALTH

SBS Wealth is expanding its team of experts: financial services leader Dennis Edel has joined the wealthmanagement provider in the newly created role of chief client officer, Matt Beach enters the company as head of client care, and Richard Phillips as head of growth.

Like chief executive Morne Redgard, who took up his role in May 2023, all three new arrivals were part of the Kiwi Wealth team.

Edel has spent more than 30 years in

financial services and was previously head of advice at Kiwi Wealth, where he also served as a financial adviser to clients, among several key advisory roles. He has also worked as a private banker for a major bank.

Edel says the role of a financial adviser comes with a duty to help clients achieve their long-term goals.

“SBS Wealth is going to set a new standard for what people should expect from their provider.”

RICHARD

KLIPIN CALLS THE END OF HIS INNINGS AT FSC

Financial Services Council (FSC)

chief executive Richard Klipin has resigned and is taking up a new role in Australia.

Describing the move as “a huge decision”, Klipin says he wanted to acknowledge the contribution of all those involved in the organisation during his tenure.

“They have enriched this journey and helped the FSC become large, valued and relevant.”

Klipin has been in the role for more than seven years, having moved his family to New Zealand to take up the position. He and his family are now all New Zealand citizens, and “proudly so,” he says.

However, they did retain their greenand-gold passports as well, and the family has already moved back to Sydney, with Klipin to follow when he is able.

“Seven-and-a-half years is a pretty good hit-out. It's a really good innings and it's time to hand on the baton,” Klipin says.

FSC chair Rob Flannagan, who had planned to step down himself, is now the interim chief executive. A

Advice Platform

DENNIS EDEL

Richard's reflections

Outgoing Financial Services Council chief executive Richard Klipin reflects on his time in the role what he would like to see in the future and whether Financial Advice NZ and FSC should come together.

GRTV: YOU FIRST CAME TO NEW ZEALAND IN A CHIEF DISTRIBUTION OFFICER ROLE AT SOVEREIGN. THAT WAS QUITE A BIG DECISION, BUT THAT ROLE DIDN'T ACTUALLY LAST THAT LONG. HOW WAS THAT YOU GOT HERE AND YOU SUDDENLY, THE ROLE YOU CAME DISAPPEARED?

Richard: Yeah, look, it was a big decision. When the opportunity at Sovereign came up and I thought, "Wow," to New Zealand. I've always loved New Zealand, been coming here since I was a kid of 15. Sovereign was an absolutely awesome business, still is today as AIA, but the business was going through change and the banks were deleveraging our life insurance and one thing led to another. And then, the FSC opportunity came up.

GRTV: IT MUST'VE BEEN QUITE A SURPRISE AT THE TIME.

Richard: Yeah. I've been in corporate life long enough to know that swings and roundabouts and stuff happens.

GRTV: YOU LEAVE A PRETTY BIG LEGACY HERE WITH THE FSC WITH WHAT YOU HAVE BUILT AND WHERE THE ORGANIZATION IS NOW. CAN WE TALK A LITTLE BIT ABOUT THE THINGS YOU'VE DONE AT THE FSC AND WHEN YOU LOOK BACK, WHAT ARE SOME OF THE REAL ACHIEVEMENTS THAT YOU'RE PROUD OF?

Richard: The FSC of 2016 was an organisation that had a mission and purpose, but had got into a bit of strife. Members were leaving. It was a really tough time.

I've always believed in the value of professional bodies, this is my second role running an industry organisation. I've always had a view that when you bring people together and focus on the stuff that brings us together, unites us, so in our capacity, helping New Zealanders make good financial decisions, giving

them confidence and so on, if you focus on that level, everyone wants to participate. When you participate at the competitive level, that can end in tears. I saw in the marketplace, a real opportunity. At that stage, it was just the life insurers and the KiwiSaver investment players, mostly the big end of town, but New Zealand's a place where you need certain scale, so you need to collaborate.

What I'm really proud of is we've built this organisation that has gone from 29 members to 120 members that incorporates life, health and KiwiSaver investment.

There's professionals all over the sector who have come into this community and help build a fantastic community and we've always kept it at the higher purpose and people really, really connect to that.

GRTV: IF I GO BACK OVER MY 30 ODD YEARS IN THE INDUSTRY AND I LOOK AT THE FSC AND ITS PREDECESSORS, LIKE THE ISI, ONE OF THE THINGS WHICH THEY ALWAYS SEEM TO TRIP UP ON IS THAT THE MEMBERS ARE ALWAYS COMPETING WITH EACH OTHER IN THE MARKETPLACE AND THAT MADE IT VERY DIFFICULT FOR THEM TO FUNCTION IN AN ORGANISATION LIKE THIS. HOW HAVE YOU MANAGED TO GET THEM TO TAKE AWAY THAT COMPETITIVE APPROACH AND WORK TOGETHER FOR THE GOOD OF THE INDUSTRY?

Richard: I think there's two things. One is you've got to have some guidelines and some rules around how you govern yourselves and that is, we're here to focus on the vision of the organization. When I started the vision was be the voice of the sector, so it was a policy advocacy-led one. In '21, I don't think we realised how big it was going to be, but we became a very consumer-led organisation, so focusing on financial confidence and well-being for Kiwis, which is really part of everyone's

mission. On the other hand, being the voice of the sector.

Guidelines and rules was one.

Second one is give everyone a voice and a place to play. There are big and there are small, it's a contest of ideas. You shouldn't just rule the world because you're big. There's a lot of great ideas across the spectrum.

Of course, the third one is, I think what Rob and I have brought to the table is capable, competent, steady leadership because there are angles. Sometimes, you do have to smack heads together.

GRTV: HOW OFTEN HAVE YOU HAD TO SMACK HEADS TOGETHER?

Richard: Not often to be fair, because if you get A and B sorted, there's much less of C and that's really been the story of the last probably seven years..

GRTV: COMING BACK TO THAT ORIGINAL QUESTION, WHAT IS A REAL BIG HIGHLIGHT FOR YOU?

Richard: I think the way we've brought the regulators, the politicians, the sector and the consumer sector together has been really powerful. You've turned up to many of our big events. They are flagship events, they are things that matter. They do bring all the stakeholders together. To our earlier football conversation, in many ways, we're all tribal. We want to belong to somewhere. There's a fantastic tribe, which is the FSC community where people belong and they come and learn, they hang out with their mates that participate in a bigger issue. Anytime we bring the community together, that's always fantastic.

We've also done a lot of the research and insight and data conversation. If you're going to have a conversation politically or with regulators, come from a position of knowledge and insight and expertise. That's really helped us build our media voice and to tell our story.-

GRTV: ON THE FLIP SIDE, WHAT DO WISH YOU'D ACHIEVED BUT YOU HAVEN'T QUITE GOT THERE YET?

Richard: Probably the biggest one is we've just released our financial resilience report. New Zealand's are doing it really tough, unemployment's just going up from four to 4.3%. 70% of people are concerned and worry about money daily, weekly, or monthly. We collectively haven't equipped New Zealand with the right skills or enough of the right skills to navigate good times and bad. This kind of consumer capability, consumer literacy discussion is one, I think, the sector should play a big part, and we're just starting to, but it's all in front of us.

GRTV: AS KIWISAVER IS LIKE THE BIG PRODUCT AND I'M INTERESTED TO GET YOUR THOUGHTS ON WHAT CHANGES YOU'D LIKE TO SEE IN KIWISAVER. WE'VE JUST HAD IN HERE, SCOTT FROM CONSILIUM, AND HE'S REALLY BIG ON EMPLOYEE CONTRIBUTIONS CONTINUING, WHAT WOULD YOU LIKE TO SEE?

Richard: Last year, we launched a Blueprint for Growth because I do think the sector needs to step into the policy leadership position. If we leave it only to politicians, only to regulators, we could be waiting a long time.

The blueprint spoke about our policy positions across the FSC. Look, KiwiSaver is just such a no-brainer. It is the product other than your bank accounts that's the most ubiquitous for Kiwis.

We've all got a KiwiSaver. There's so much you can do with that and when you look across the ditch and other jurisdictions, it becomes a place where you can learn to invest and to save, to make good decisions about accumulating, about protecting, and then ultimately, deaccumulating or spending.

We're shouting out, we're calling out for government to step up to the plate and go KiwiSaver. The vision for KiwiSaver is not the next three years, it's the next 50 years and we need a pathway to greater contributions, greater participation, greater involvement from employers and employees, perhaps a conversation about is there opportunity to build some risk management in there. These are the things that I think will shift the dial for all of New Zealand and of course, it's going to be bought for everyone.

GRTV: ONE OF THE KEY TAKEOUTS TO THAT ME WITH BLUEPRINT FOR GROWTH, IS THAT YOU WANTED TO SEE THE FSC BECOME MUCH MORE OF A POLITICAL ORGANISATION THAN IT HAD BEFORE. HOW DO YOU THINK THAT'S GOING TO PLAY OUT WITH BOTH YOU LEAVING AND THE CHAIRMAN LEAVING? THE OTHER THING IN THE PAST WHEN PREDECESSOR ORGANISATIONS HAD GONE DOWN THIS ROUTE, THEY HADN'T ACTUALLY BEEN

THAT SUCCESSFUL. HOW DO YOU SEE THIS PLAYING OUT?

Richard: I disagree with you. I don't think we're becoming a political organisation, we're becoming a policyled organisation and we're agnostic politically. Whoever's in power is whoever's in power. Good policy resonates.

You need to build muscle memory on that. Over the past seven years, one of the other great success has been we've really influenced policy outcomes probably in three ways. One is every time we put a submission together, we're helping to shape and get better outcomes and we've got a fantastic track record there. The other thing is we've got to stop bad policy coming to the table. Now, we were pretty vocal when the NZIIS came to the table. We said it was a good idea in theory, but the implementation was poor and we were very vocal about making sure that it didn't go further.

When GST and KiwiSaver turned up, we got very vocal on that as well. We're in the policy conversation happening for a while where we're now stepping into is the big picture stuff. What's the big vision for sectors?

GRTV: IT WAS QUITE INTERESTING THOUGH, AND I ACKNOWLEDGED WHAT YOU DID IN THOSE ISSUES. WHEN WE CAME INTO THE ELECTION PERIOD LAST YEAR, I THOUGHT THE FSC COULD HAVE BEEN MORE VOCAL ON SOME OF THE POLICIES WHICH WE'VE BEEN PUT OUT THERE AND WE'VE EVEN HAD MINISTER BAYLY IN HERE ADMITTING THAT SOME OF THE POLICIES THEY CAMPAIGNED ON WEREN'T NECESSARILY ACTUALLY THAT GOOD.

Richard: It's interesting, and I acknowledge the role of the fourth estate and certainly, the role of Good Returns. You did ask us the question and we did respond. Our response was, "Look, in an election period, people are going to say all sorts of things.

They did say all sorts of things. When whoever wins gets into power, we'll deal with what's in front of us. We took the view that we don't want to be political in an election cycle because there's a lot of noise. Frankly, they're all making lots of promises now we're going to hold into account. That's kind of where we play.

GRTV: JUST FINALLY, OVER YOUR REIGN AT THE FSC, YOU'VE TAKEN OVER THE HEALTH FUNDS ASSOCIATION, WOMEN IN SUPER AND WORKPLACE SAVINGS. YOU NEARLY CREATED A MONOPOLY. YOU HAVEN'T QUITE GOT THE ADVICE SECTOR ON THERE. HOW IMPORTANT DO YOU THINK IT IS THAT THE FSC ACTUALLY GETS INTO THAT SPACE? I THINK YOU WANTED TO GET INTO ADVICE, BUT YOU HAVEN'T QUITE GOT THERE.

Richard: Thank you, Phil. Always

welcome these questions. New Zealand's a place of scale. If you're going to make a difference as a professional body, you need scale, which means you need funds, which means you need the ability to actually influence outcomes.

The broad umbrella of the FSC now deals to all those things. Interestingly, the financial advice is almost the enabler for many New Zealanders to make the right decisions around KiwiSaver, life insurance, health insurance, and so on.

I've been in the financial advice sector for the best part of 30 years, a huge believer. Interestingly, we did the research in the FSC membership. 30% of FSC members are FAPs and the other manufacturers who are not FAPs also distribute to financial advice. We have a critical interest in the role of advice in financial advisers for a number of reasons.

It's in the best interest of New Zealanders. We've done the research, the out performance is huge, and the confidence they get from working with a good adviser is so important.

FSC members are in the advice business or they work with advisers and we've always had a very collaborative view to work with financial advice, New Zealand in its pre-forerunners and today, when Katrina took over her role. Delighted that Nick Hakes has come in as the CE. You had him in here the other day. I thought he spoke really, really well. I think there's an opportunity to work much more collaboratively with Financial Advice New Zealand for all interests, and that's ultimately to serve New Zealanders.

GRTV: DO YOU SEE A DAY WHEN FINANCIAL ADVICE NEW ZEALAND BECOMES PART OF THE FSC?

Richard: Look, it's not going to be in my tenure, obviously. Put it this way. There are roughly 10,000 advisers in New Zealand. Having a really strong, loud and capable financial advice representative body is of great value to everyone.

In that regard, I wish Nick well, I wish his board well. We've already collaborating, we're actually already talking about how we might do that together, whether there's a merger or coming together at some later point in time, it'll obviously be up to the leaders of the day

GRTV: DO YOU HAVE A VIEW?

Richard: I think collaboration works. That's how we started with Workplace Savings. That's how we started with Empower Women in Super. Sometimes, there's a natural coming together that just works. Whether you want to have a separately run and funded organisation or bring it together, both can work. I'm pretty agnostic about it, but certainly, right at the beginning, the FSC set up a professional advice committee. A

Advisers and KiwiSaver

How many KiwiSaver members have an independent financial adviser? ASSET went to managers to find out and discovered some interesting trends.

KiwiSaver funds under management now sit at more than $100 billion and more than three million New Zealanders have KiwiSaver accounts.

However, those with financial advisers remain in the minority.

One fact is clear: those with financial advisers tend to have larger balances than those who don't.

Whether that means having an adviser boosts a KiwiSaver's balance, or that KiwiSavers with larger balances are more likely to seek financial advice, is an open question.

The answer is probably that both are contributing factors.

Someone asked ASSET publisher Philip Macalister what proportion of KiwiSaver members have advisers?

“Since it was such a good question, ASSET has asked that question of the KiwiSaver providers,” Macalister says.

“Our approach to the question was to break KiwiSaver distribution into three categories. There are the direct retail clients, including those in default funds, which have no advice whatsoever,” he says.

“The middle category is one where KiwiSaver providers, such as Milford and Fisher Funds, have their own inhouse

advisers.

An extension of this category is that some of the bigger players offer tools to help KiwiSaver members. Our view is the latter is not pure advice as members are not being told about other schemes,” Macalister says.

“The third group, and the one we are focused on, is distribution through independent financial advisers.”

In this group, some KiwiSaver scheme operators, including Booster and Consilium, derive all their membership from financial advisers, although in Booster's case, some of the advisers are inhouse.

Generate's KiwiSaver scheme has a mix of internal and external advisers, but only 7% are without advisers.

The latter have smaller average balances at about $31,000 compared with the $37,000 average balance of those with a Generate adviser. However, those with an independent adviser, 39% of members, have slightly higher again balances of about $38,000.

Milford Asset Management has one of the largest advised KiwiSaver memberships with more than $1 billion now attached to an independent financial adviser.

Milford's head of wholesale distribution, Michael Robson, says that

‘One fact is clear: those with financial advisers tend to have larger balances than those who don't.’

about one-third of funds flow is now adviser-driven.

KiwiSaver is a scale game and advisers help build scale, Robson says.

At the time of writing, Milford had more than 14,600 advised clients and relationships with 200 financial advice providers (FAPs) – the actual number of advisers is higher than this as most FAPs have more than one adviser.

“We are growing strongly in this space,” Robson told ASSET.

The other impressive statistic is Milford now makes up 20% of the transfer market – that is just under a quarter of members switching providers are choosing to move to Milford.

Robson reckons that it’s a combination of Milford’s superior investment performance that has led to such a large number of KiwiSavers moving out of poorer performing funds into Milford’s.

And he thinks that performance also explains why, unlike most schemes, the average balance of those in Milford’s scheme, about $76,000, is much the same for both those with and without advisers.

But he does note that of those who joined Milford’s scheme in the last six months, those with advisers had balances of about $58,000 while those without had about $48,000.

Robson says some advisers target higher-balance clients but that younger advisers are embracing KiwiSaver and doing innovative things, particularly around risk profiling.

Conversely, many of the older advisers who have now retired did not embrace KiwiSaver strongly.

When it comes to remuneration, Milford lets advisers charge a trail fee between 20

and 50 basis points, although the average sits at about 20 basis points, he says.

This fee is transparently disclosed on members' statements and Milford makes a 20 basis point rebate to members.

“There are two line items on [a members'] statement,” Robson says. “We want to be transparent.”

He says making the rebate is an acknowledgement that members using an adviser save money for the firm because it means fewer calls to its call centre.

That 20 to 50 basis point range appears to be the standard trail fee paid to advisers putting their clients into KiwiSaver funds.

Robson says the other important benefit for members is that the advice fee is tax deductible.

Fisher Funds has about 14,000 members with about $780 million in total funds who have joined its two KiwiSaver schemes – that's not counting the members Fisher gained though purchasing Kiwi Wealth in late 2022, whose KiwiSaver scheme was not offered through external advisers.

The average balance of these members with external advisers is more than $57,700 and that compares with the average balance of those with no adviser of about $33,300.

In addition, another 9,000 members have joined the two funds through salaried Fisher employees who are advisers and they have about $1.5 billion invested, or an average balance of about $166,667.

While the members in this category are aged across the spectrum of ages, incomes and lifestyles, those over age 65 are over-represented, says Sharon Mackay, Fisher's head of third party

distribution.

Mackay explains that its the lower fees charged by the KiwiSaver products than by other comparable managed funds that has attracted such people to consolidate their nesteggs into the KiwiSaver funds, even though they no longer qualify for the tax breaks available to those under 65.

“They were not necessarily invested in KiwiSaver from day one,” Mackay says. “It's a much more popular vehicle than it used to be.”

One of the catches though, is that KiwiSaver accounts have to be in the name of a single individual, so it may not be a suitable vehicle for couples who want to hold joint accounts or for those using a trust.

In total, just over 10% of its KiwiSaver clients directly receive personalised advice and have a direct relationship with an adviser.

Like Milford, Fisher pays advisers a small trail fee between 20 and 30 basis points in addition to a very nominal upfront payment.

“Generally, we still find lots of New Zealanders who don't feel they need advice,” Mackay says.

Many think getting financial advice would be “a very intense, in depth and confrontational experience,” she says.

“But generally, people who do get advice find it very helpful – the challenge for New Zealand is how do we make advice feel much more accessible and how do we make advice feel less frightening?”

There's also a widespread belief that financial advice is only available to wealthy people.

Financial Services Council data does show that those who do get advice are generally better off, Mackay notes.

̒... generally, people who do get advice find it very helpful – the challenge for New Zealand is how do we make advice feel much more accessible and how do we make advice feel less frightening?’

Sharon Mackay

She observes that while financial advisers are almost always useful to their clients, they really come into their own when financial markets are plunging because that's when clients most need assurance that their investment strategy is sound.

It's also the periods in which retail investors are most in danger of selling investments when most would be better off riding out the storm, particularly those who are younger and have many years in which their funds can recover.

Smartshares has nearly $1.24 billion in KiwiSaver FUM in three distinct categories.

None of the 52,147 members of its default fund, which has $532 million in FUM, have advisers and their average balance is.$10,201.

About 1,431 members, or about 4.3% of its SuperLife KiwiSaver clients, have advisers and have an average balance of about $45,000.

The third category is the Quay Street business, which has 5,862 members, all of which have advisers and have an average balance of $50,324 – Smartshares' owner, stock exchange operator NZX, bought Quay Street from Craigs Investment Partners in February last year.

Smartshares chief executive Anna Scott says in her experience, “people with more money do tent to seek out more advice.”

While some members have accessed roboadvice and the SuperLife KiwiSaver scheme offers Age Steps, a plan that changes your asset allocation as you age – a 20-year-old would have 95% of their balance in growth assets and 5% in fixed

‘A lot of people in NZ think advisers are for wealthy people. But even if a person has just $10,000, if invested wisely. that could build into a decent-sized nest egg.’

Anna Scott

ANNA SCOTT

‘One of the benefits of having an adviser is understanding how to make the most of your money.’

Fiona Martin

interest while a 60-year-old has 57.4% in growth assets and 42.6% in fixed interest – Scott says she doesn't class those members as being under advice.

In New Zealand, “we do have a lot of uninformed people making ill-informed choices,” she says.

The development of Sharesies encouraging people to start thinking about investing has been great.

But KiwiSaver is supposed to be to provide for your retirement so it's about long-term asset accumulation rather than trading.

Scott says she would like more people to seek advice. “A lot of people in NZ think advisers are for wealthy people.”

But even if a person has just $10,000, if invested wisely. that could build into a decent-sized nest egg. She thinks financial literacy should be being taught in high school.

While the AMP Life business is in winddown mode, the AMP Wealth business is still very much in business and had 146,160 KiwiSaver members at March 31 last year with an average balance of $39,656 compared with the industry average of about $28,103.

AMP's total KiwiSaver FUM was $5.8 billion.

The team manager of client relationships, Fiona Martin, says she thinks the higher balance reflects the ongoing relationships AMP has with what used to be tied advisers who are now independent, but who still recommend AMP's products.

“That's probably a holdover from when we had aligned advisers. A lot of those advisers have independent agreements with us and they've stayed with us.”

About 28.9% of AMP's members, or 42,204 people, have external advisers and their average balance is about $42,650, or $1.8 billion in FUM.

Another 2,547 members have AdviceFirst advisers who are employed directly by AMP and these members have

an average balance of about $78,500.

“One of the benefits of having an adviser is understanding how to make the most of your money,” Martin says, adding that a lot of customers don't realise what they're entitled to and an adviser can help with that.

“We really focus on trying to make sure our clients are in the right fund and making the most of their money,” she says.

AMP works very closely with a number of employers and helps their staff by running seminars at employers' sites to explain the importance of superannuation savings as well as how having KiwiSaver balances can help first-home buyers into owning their own homes, Martin says.

“To me, the key is education and helping KiwiSavers understand how KiwiSaver works. It's quite sad that the average Kiwi doesn't understand how a managed fund works.”

While its directly employed advisers are paid a salary, AMP pays trail fees to independent advisers at about the middle of the industry range of 20 to 50 basis points.

Some managers are only beginning to engage with advisers.

Kernel Wealth is a relatively new KiwiSaver manager, having only launched in early 2019.

Chief executive Dean Anderson says less than $2 million of its KiwiSaver FUM has come from advisers.

“We've only just turned on and [are] in the midst of onboarding a dozen firms,” Anderson says.

A number of KiwiSaver providers, particularly the banks, simply don't deal with advisers.

ASB Bank, for example, doesn't know how many of its KiwiSaver members have advisers.

“We don’t necessarily know which of our customers work with a financial advisor outside of ASB so we can’t provide numbers for this,” a

spokeswoman says.

“The financial adviser business model makes it difficult to comment on the balances of customers with or without an adviser as there is often a minimum required investment and customers who already have higher balances can be more likely to engage an adviser,” she says.

ASB does provide its KiwiSaver members with an Explorer Tool aimed at ensuring customers are in the right fund and contributing the correct amount to reach their financial goals.

It says about 20,000 KiwiSaver customers engaged with the digital advice tool in the last 12 months.

Similarly, Bank of New Zealand, says it offers advice and support directly to its KiwiSaver members.

“We don't have data we can share on the percentage of BNZ KiwiSaver members who use independent financial advisers or their associated funds under management,” a spokesman says.

However, ANZ Bank New Zealand, which is also the largest KiwiSaver manager, says that about 39,500 of its 674,500 members, or 5.9%, have external financial advisers.

Mercer says about 1,000 of its members sought financial advice from its inhouse advisers, which are noncommission-based employees.

While it said their balances ranged from less than $1,000 to more than $1 million, Mercer didn't provide any other numbers required to put this in any kind of perspective.

“We believe in the importance of financial advice to give New Zealanders the confidence to thrive in retirement,” the Mercer spokeswoman said.

“Members are encouraged to seek financial advice based on triggers, rather than balance, such as buying a first home, joining the scheme, being five to 10 years away from retirement, making too many investment switches or having concerns about market volatility.” A

Why smart advisers are focusing their attention on KiwiSaver

KiwiSaver will become the most significant part of an adviser’s business within the next 15 years.

That’s the prediction from Scott Alman, the managing director and founder of Consilium, who says as KiwiSaver balances rise to the equivalent of an investor’s annual salary, the demand for individual advice is likely to grow significantly.

“We’re at this real inflection point in New Zealand where KiwiSaver is mature and investors are starting to say, ‘My balance is at a point where this is serious, and my actions need to become more serious too'.

“Once a large amount of money is at stake, investors usually understand the value of paying for advice,” Alman says.

For these investors, another moment of truth may come when their KiwiSaver portfolio is making more money on average each year than the individual is contributing. At that point, it makes economic sense to look at the big picture –their total investments inside and outside KiwiSaver – and seek independent advice.

“The ‘magic’ of compounding returns and regular contributions will continue to lift these balances,” Alman says.

Consilium’s own KiwiSaver scheme, KiwiWRAP, has an average balance of $170,000 and every year we’re seeing larger and larger fund balances.

This year, a couple of million-dollar KiwiSaver accounts transferred in. And, as balances continue to grow, people will become more interested in the fees they pay and the returns they get. KiwiSaver is going to be an ever-increasing part of their financial wellbeing.

“Historically, New Zealanders have been relatively poor savers, and not everyone has the ability to put money away for a rainy day. But KiwiSaver will help them achieve this.

“Over time, they will end up with a healthy balance to use in their retirement, in addition to their other assets. That’s something a lot of people haven’t had in the past,” Alman says.

Big pool

Sixteen years after its inception, KiwiSaver is now attracting significant new money every year.

In the 12 months to 31 December 2023, total funds under management in KiwiSaver rose 18%, breaking through the $100 billion mark, according to the Financial Markets Authority. And while the average balance remains relatively modest, at around $29,000, this doesn’t

BY JENNI MCMANUS

tell the whole story.

For example, average balances are dragged down by a large number of noncontributing members. Some are making only minimal or sporadic contributions, and there has been a record number of hardship withdrawals over the past year.

Average balances also mask the fact that a growing number of people have very high KiwiSaver balances.

For example, Consilium's KiwiWRAP KiwiSaver Scheme has 440 members, with more than $75 million invested and an average investor balance of $170,000the highest of any KiwiSaver provider.

In Alman’s view, the KiwiWRAP model is the way of the future. And now is the time for advisers to think hard about how to restructure their businesses to include the fast-growing KiwiSaver market.

In Australia, where superannuation has been compulsory since 1992 and employer contributions are at 11%, twothirds of the money advisers handle is superannuation funds.

Additionally, superannuation assets represent 145% of GDP in Australia. In New Zealand, the figure for KiwiSaver is only 37.3%.

Alman points out, however, that because of the different ways KiwiSaver and Australia’s superannuation schemes are taxed, New Zealand isn’t a long way behind in terms of contribution level, compared with the Australian scheme at the equivalent age and stage.

Advice-driven platform

Consilium’s KiwiWRAP platform is entirely advice-driven. In fact, only advisers can access the platform on behalf of their clients.

As opposed to selecting a single fund, which is the typical KiwiSaver model, advisers and investors using KiwiWRAP can choose from more than 400 investment options to design and customise their individual KiwiSaver portfolios.

Increased transparency is another key feature of the scheme. Rather than the opaque fee structures often found with some traditional KiwiSaver funds, KiwiWRAP investors and advisers can see the cost of the scheme, the investments and the advice.

“Complete transparency is so important. Members should know exactly where their money is invested, who the managers are, their risk tolerance, their asset allocation and what fees they pay for administration, funds management and advice, ”Alman says.

It’s a far cry from the mass-market

‘KiwiSaver is mature, and investors are starting to say, “My balance is at a point where this is serious, and my actions need to become more serious too’

Scott Alman

KiwiSaver model that has served the industry since July 2007, where investor choice is generally limited to selecting a provider and the level of risk they can tolerate.

And while some providers have started offering basic advice, it is rarely tailored to individual needs and may or may not be independent.

Alman believes the traditional KiwiSaver model has served New Zealand well up to this point. It was designed to be simple and portable and that was a really good way to kick off the scheme.

However, 16 years down the track, it needs to move to the next stage – the incorporation of advice, he says.

KiwiWRAP KiwiSaver Scheme is designed for investors with a balance of $50,000 and above and is only available through an accredited adviser. You can find a list of accredited advisers at www.kiwiwrap.co.nz/findan-adviser or contact Consilium about becoming accredited. A

SCOTT ALMAN

Love it and list it

Jenny Ruth looks at the investment community’s response to the possibility of a public listing for Kiwibank

There's no doubt the investment community would welcome with open arms the Government deciding to sell 49% of Kiwibank and to list it on NZX.

The Commerce Commission's draft report on competition in personal banking services has given the Government a perfect excuse to follow in the footsteps of the last National-led Government, which listed 49% of the three state-owned electricity generators and retailers on NZX in 2013 and 2014.

The ComCom didn't actually recommend this course of action, but it did note that Kiwibank has been constrained by a lack of capital from posing a significant challenge to the four major Australian-owned banks that the competition regulator described as an “oligopoly.”

Providing Kiwibank with more capital would allow it to become “a maverick,” disrupting the stable market shares of the big four, ComCom chair John Small told journalists when he released the draft report.

The Kiwibank recommendation was ComCom's second of 16 to the Government: “Kiwibank's owner should consider what is necessary to make it a disruptive competitor, including how to provide it with access to more capital.”

No cash to spare

Small and ComCom could hardly be unaware that the Government formed late last year faces, in the words of think-tank The New Zealand Initiative, “daunting fiscal challenges inherited from the previous Labour-led Government's tax-deficit-and-spend policies.”

The Government's budget policy statement, issued in late March, showed it wants to both get better value out of government spending as well as delivering its election promises of tax cuts, but that it's unlikely to return to budget surpluses until 2028.

In that environment, there appears no possibility the Government would have any spare cash to shovel Kiwibank's way.

Indeed, selling a 49% stake could help relieve the Government of some of the debt burden it inherited - and it could use a float to raise new capital for the bank from investors.

‘Banks are very capital-intensive businesses; there aren't many globally competitive banks that aren't listed on a stock exchange somewhere’

Ashley Gardyne

How to value a bank

There are various ways one could calculate what Kiwibank might be worth, but a simple method would be to use the current NZX 12-month-forward, weighted price-to-earnings ratio of about 22 times earnings.

Given that this is about 23% above the long-run average, according to Forsyth Barr analyst Matthew Leach, one might want to trim that back a little, and, of course, analysts would apply a number of Kiwibank-specific factors in arriving at a rough estimate of its worth.

Kiwibank reported a $105 million net profit for the six months ended December – annualise that and assume it earns somewhat less in the secondhalf, then about $180 million looks like a reasonable estimate – and the bank earned $175 million in the year ended June 2023.

Even being ultra-conservative, you'd get a figure north of $2.5 billion, and

49% of that would be at least $1.25 billion.

The shot-in-the-arm that sort of float would give NZX would be tremendous; it doesn't bear thinking about what NZX would look like without the three government-controlled gentailers.

“We would be highly receptive to looking at that investment opportunity,” says Harbour Asset Management managing director Andrew Bascand.

But he doesn't agree with ComCom's assessment that a capital-bolstered Kiwibank could become a “maverick” change agent for New Zealand's banking sector.

Look across the ditch

Fresh from the Australian Financial Review's 11th annual banking summit in late March, Bascand points to the major factors that shook up the Australian banking market and which have led to a more-than-halving of bank profit margins.

First there was the advent of non-bank mortgage lender Aussie Home Loans in the early 1990s. At a time when the major banks were operating at 400 basis-point margins, the new lender started operating at about 200 basispoint margins and “broke the back of the bank oligopoly” across the Tasman, he says.

Following the GFC and a rash of bank consolidation, including Westpac swallowing St George Bank, Macquarie Bank then emerged as a competitor, using digital technology to sell mortgages without the need of the branch networks the major banks still used.

Macquarie targeted the low-risk part of the market, mortgages at loan-tovaluation ratios below 70%, and was instrumental in pushing bank margins below 200 basis-points.

Bascand says it would therefore be critical to consider both Kiwibank's current performance, including its return on equity (ROE), and its future strategies.

̒The gentailers became much, much better and I would certainly expect that to be the case [with Kiwisaver] ’

Matt Goodson

“Kiwibank has an improving arc of profitability,” he says. “They're not going backwards, which is good.” But he reckons the bank would need to be targeting ROE in double digits.

According to the Reserve Bank's bank dashboard, Kiwibank's ROE in the December quarter was 7.2%, while the big four's ROEs ranged from ANZ Bank NZ's 9.2% to Commonwealth Bank of Australia-owned ASB's 14.5%.

Listing a win-win

Fisher Funds chief investment officer Ashley Gardyne says an NZX listing would be positive for Kiwibank as well as for NZX and investors.

“Banks are very capital-intensive businesses; there aren't many globally competitive banks that aren't listed on a stock exchange somewhere,” Gardyne says.

Initial public offerings (IPOs) listing on NZX have been few and far between for a number of years.

“I think there would be a lot of interest,” he says, particularly from Kiwibank's own customers, as was the case from the gentailers customers.

Kiwibank’s million-plus customers are “very loyal,” Gardyne says.

“They went there for a specific reason. They wanted to support and back a New Zealand company.

He says a listing would be good for capital markets.

“It would be one that would be reasonably sizeable and quite liquid.”

The likely size of the new entity also means it would join the Top 50 index, automatically creating demand from passive funds.

“I can't see much downside because it's a proven path: the gentailers have been very successful.”

Listing on NZX, along with the scrutiny that goes with it, has had positive effects on the gentailers in terms of corporate governance and their investment decisions.

“It's really brought a focus on what their core business is,” Gardyne says, adding that being publicly listed can also be helpful in attracting talented people.

There was a rash of listings of other companies on NZX at about the same time as the gentailers listed, but Gardyne says he isn't sure this could be attributed to any “contagion” effect.

He thinks the kind of companies NZX should be trying to attract are those whose founders want to remain with their

companies to build them for the longer term - rather in the mold of Xero founder Rod Drury, who was chief executive from the 2007 listing through to 2018 and who remains on Xero's board.

Large addition to NZX welcome

Salt Funds Management managing director Matt Goodson says he would welcome an additional “and presumably a rather large addition” to NZX.

He points to other public/governmenttype structures, such as Port of Tauranga, which have also been successful additions to NZX in the past.

Like Bascand, Goodson doesn't necessarily buy the ComCom's arguments about the lack of competition in New Zealand banking, noting that the major banks face much the same funding terms, have the same credit ratings, and have similar capital resources.

“It's little wonder that their lending rates, deposit rates and other terms are similar. I would say it's a perceived lack of competition rather than an actual lack.”

Goodson says listing would likely improve Kiwibank's corporate governance.

“The gentailers became much, much better and I would certainly expect that to be the case.” A

Personal pride in the ethical approach

Paul Brownsey talks about treading a different path, generating good returns within an ethical investment framework

BY ANDREA MALCOLM

A“control freak” is how Paul Brownsey, one of New Zealand’s leading ethical investors, characterises a good ethical-fund manager.

It’s a description that fits both himself and Pathfinder co-founder John Berry, he says, but after many a night poring over a Bloomberg terminal, and 60-hour weeks, he has relinquished control and resigned as Pathfinder CIO.

It’s been 14 years since the pair“refugees” from the world of investment banking - set up their boutique investment firm.

Brownsey had worked in fixed income, credit and currencies for Salomon Brothers in Singapore, London and Sydney, but being caught up in the Bali bombing in 2002 prompted a desire to return home.

He took a role in credit and bonds with Deutsche Bank New Zealand, where he met Berry. They hit it off.

“We had a lot of fun at Deutsche Bank. There were good people and it was very entrepreneurial at the time.

“They wanted to set up a local fundsmanagement business, but couldn't do it directly because they already had a funds-management arm.”

They could, however, become a minority owner in a funds-management company.

Brownsey and Berry were setting up businesses for the bank, and had got to the point where what became Pathfinder was ready to go, when the GFC hit.

“We could see the writing on the wall, so we left on a negotiated redundancy basis, but Deutsche Bank was great because they supported us to set up Pathfinder.”

Resourcing was tough, and Pathfinder’s first home was an office over Berry’s garage. Getting the word out was also a challenge.

“We thought everyone would come flocking, but it was much harder than we expected.

“I am 100% not a natural marketer. The hard sell is not in John's or my nature.

“He has since become a visionary story-teller and spreads the message, but he’s more of an advocate than a marketer, and a lot of what he talks about is bigger than Pathfinder.”

However, advisers were generally supportive and a break came when Pathfinder was appointed to set up a commodity fund for BNZ’s private bank.

‘You can't be ethical and passive, because, if you give control to other people, you can no longer be confident that you're working in an ethical manner.’

Paul Brownsey

Doing it differently

In an era when the industry was plagued with shonky debentures and finance companies going bust, the aim was to be different.

“We thought we've got to be more transparent, explain more what we're doing and have proper procedures, so we were trying to be different to the bigger managers by being fully transparent.

“We’d show our holdings to people and they'd be surprised that we'd share that information.

“It’s common now, but back in 2010, 2011, people were reluctant to give away their secret sauce. But John and I thought, ‘If we were investors, we’d want to see what the managers are doing.’”

Also, at the time, a lot of foreign funds were being sold into New Zealand - but not by local fund managers.

“Obviously there were some good managers around New Zealand/ Australian equities like the Devons and the Milfords. We decided not to compete on the New Zealand/Australia side,

because it wasn't our expertise then, but we had worked in international assets - so we decided to bring New Zealand PIE funds invested in foreign assets to market and be different that way.

“We saw ourselves as complementary to local boutique managers.”

Treading water to ethical

The idea to launch a managed global water-fund in 2010 arose out of a conversation with a financial adviser.

“We had experience with the commodity fund for the BNZ, and an adviser - I think in Nelson - said, ‘Your commodity fund is interesting, but it’s not for me. Why don’t you invest in the most important commodity of all?’”

Although not immediately obvious, that commodity turned out to be water, which, after some research, looked like a compelling investment thesis, says Brownsey.

“Even at that stage, we were talking about climate-change issues, water availability in the third world, urbanisation, and virtual water [water embedded or hidden in products].

“I wouldn't say we had an ethical policy or framework at that time, but we were thinking about a responsible way to invest - and over the years that grew into an ethical approach.”

The water fund, which has returned 8.7% over the last 10 years, now has $70 million AUM [assets under management].

It’s a strong thesis-driven fund, with the macro-issues driving it only continuing, he says.

Enter KiwiSaver

By 2018, Pathfinder’s ethical thinking had developed and the partners could see a gap for a responsibly-managed, ethical KiwiSaver product.

“Overseas experience showed there was a large part of the population that, as long as returns were good, would choose an ethical manager over a non-ethical manager.”

But taking the leap required more

capital and infrastructure.

The pair sold 51% of Pathfinder to Alvarium, which wanted a funds presence in New Zealand. It eventually absorbed 100% of the business, while Brownsey and Berry took a 20% share in the combined business.

“They had previously bought New Zealand Assets Management, a longstanding company in the wealth space.

“Apart from the clients and funds, they had pretty deep infrastructure set up around compliance and back office. So, when we set up a KiwiSaver scheme, we were able to tap into that framework.”

The Pathfinder team, now five people, moved from Takapuna to the CBD and started adding staff.

Doing the maths

“We’ve been able to generate good returns within an ethical-investment framework, and I take a lot of personal pride in that,” says Brownsey.

“People say that if you reduce your opportunity set of investments, you must increase risk and potentially lower returns. I don’t think that’s necessarily true if you approach the problem in the right way.”

There are roughly 5000-6000 companies on the global, developed, equity markets. If you filter out those that are really small or in markets you don't like, you end up with about 1800 legitimate options for your fund, he says.

Ethical exclusions leave around 1100, and in building a portfolio you might have 100-125 names out of that.

“Personally, as a financial maths person, I think that's okay; you can build a robust portfolio that meets your risk criteria, and behaves how you want it to behave when certain things happen like a GFC.

“It’s super important to build portfolios

that behave in ways you can understand and explain under certain market conditions. And I think that 1100-ish opportunity set, from a mathematical perspective, is sufficient to do that.

“So, when other managers say, ‘Oh, you can't exclude all these other companies because they’re so important’, I think that's a cop out.”

When that other big scenario, Covid, hit, Pathfinder was already underweight in equities, he says.

“We had a big, long rally going into Covid; the markets were looking a bit tired, and, just on a valuation basis, we thought there were better opportunities to invest.

“So, we certainly didn't see Covid coming - but when markets got crushed, we were active. We were already underweight but we also got quite defensive taking risk off the table.

“We also had a very underweight exposure to bonds. They were going up in value because people wanted a secure place for their money, but then they were going down because people thought the governments were going to go bankrupt.

“It was very messy. And so when markets bottomed and started reacting to some of the government responses around Covid, we were able to invest more money.”

Pathfinder’s KiwiSaver had a strong performance through the Covid period, with its Conservative fund being the only conservative KiwiSaver fund with a positive return for the first quarter of 2020.

“As an investment team, we were super proud that we’d negotiated the Covid crisis in really good shape.”

People business

But it’s risky to only look backwards, says Brownsey. You have to think about

what might happen.

“Typically, one of the risks of financial markets and financial market regulation is that any changes made only solves the last crisis. And the next crisis will always be different. So, that's the art rather than the science: thinking of what might happen, not what has happened.”

He says there’s no formal way to do it. It’s more about having people with different backgrounds and outlooks just chatting.

“In my long history of working in different marketplaces, it's always been a people business, with good outcomes from having good people communicating.”

He says an ethical manager is, by definition, an active manager.

“You can't be ethical and passive, because, if you give control to other people, you can no longer be confident that you're working in an ethical manner.

“It's the same with using other fund managers. That's dangerous because you have no control over what they do.”

Pathfinder doesn’t have underlying managers, he says. All funds and all investments are handpicked by Pathfinder people.

“I think that’s very important.”

But fund managers should be humble, he says. Markets can turn on a dime, and anyone who says they can predict what is going to happen is a charlatan.

When all is said and done, the best thing an investor can do is put their money into investments they believe in and have an appropriate long-term riskand-reward expectation.

“And that can be hard for an active manager to accept. Most people's view of active managers is that they're in there trading stocks every day.

“When I was running the investment team, sometimes we’d go months without doing a trade - but we were always making sure our portfolios were working, still running our risk measurements, and looking at individual company report earnings to make sure they were still a good home for our investors' money.”

Now into a six-month non-compete period, Brownsey is relaxing with golf, fishing, catching up with friends, and spending a day a week looking after his preschool granddaughter. Beyond that there are no plans although he’d love to come back to investments.

“I love investment management. One of the challenges for me over the last few years was that as the company got bigger, more time was spent on other stuff. You move away from what you really love doing.

“The compliance burden is getting bigger all the time. It's a good and necessary thing, obviously, but there's an overhead. I want to do something more investment-focused.” A

PAUL BROWNSEY

Power in numbers

A self-confessed, “numbers guy”, adviser Travis Hamilton is aiming to spend 50% of his working hours face-to-face with clients giving advice –rather than the industry average of nine per cent.

Travis Hamilton is planning to spend the rest of his career in the financial advice sector.

“100%,” he says. “For as long as I work, I’ll be doing this in one form or another - whether that’s giving advice to clients or looking after advisers or staff. I won’t be doing another career, that’s for sure.”

Hamilton, who is director and an insurance adviser at TMX Advice in Christchurch, has been in the insurance industry since 2011, when he graduated from university and took a role with Lifetime.

With a degree in finance and economics, he says he’s always been a “numbers guy” as well as a people person.

“Back then, it was kind of hard to find places to get a job. The firm I worked for said it was a full commission-based model: ‘If you don’t get any deals, you

won’t earn anything’. I remember thinking, ‘I’m not earning anything at the moment anyway’.

“I’d just graduated and had no job, so it was no loss.

“It was always going to be something to do with numbers or finance – I didn’t know it was insurance, but I don’t think anyone who does insurance advice believes they’re going to be an insurance adviser when they’re young. Everyone ends up accidentally in the industry.”

Perfect match

Hamilton considers himself lucky the job allows him a working style he enjoys.

“I liked the idea of running my own schedule but I’m an extrovert, so I like working with people.”

In 2014, he went out on his own with Plan B Financial Services. He then sold that business in 2016 and went back to

‘I want to know that 50% of the week, I’m giving advice’

Lifetime as adviser development manager and South Island manager.

Being away from the coalface of insurance advice gave him a different perspective. At the time, Lifetime was merging with Camelot, which offered Hamilton a new experience.

“There were two years when I wasn’t actually writing; I was managing the team. I enjoyed the management role but I missed giving advice to clients – it’s what I had always kind of done.

“I wanted to get back into giving advice and running my own company.”

So three-and-a-half-years ago, Hamilton went into partnership with Christchurch mortgage-advisory firm Tony Mounce Mortgages, and started TMX Advice as its insurance business.

“I run the insurance side, he runs the mortgage side.

“Even though I’ve got Tony Mounce and his business partners as well - I’m in partnership with them - you’ve got the ability to run your own ship.”

MDRT inspiration

Hamilton has been a member of the Million Dollar Round Table (MDRT), an international association for insurance and financial advisers, since about 2012, and says that has helped to power his success.

While he was first attracted by the idea of a regular overseas conference, he says he’s benefited from much more.

“[The conference] is only a component of it. The other members of MDRT have all done well in their fields and everyone is sharing ideas about what works for them

and what doesn’t.”

When he started, the other members were a goldmine for things such as sales ideas, referrals and lead generation. Now, he takes the opportunity to share thoughts about practice management, recruitment and client retention.

“You get a lot of insight from other members, whether it’s a speaker or a podcast, an article or a physical meeting. Connecting with other advisers who have gone, ‘Hey, this works for me, have you thought about this’… that’s where the main value comes from it.

“Sometimes it’s not listening to a speaker at a conference, but a conversation over a coffee or a drink. Everyone is so open and sharing with each other.”

He says while it is right that the insurance industry has shifted its focus towards more compliance, it’s meant that some of the soft skills that advisers used to be taught, including from insurers, are not passed on so much. MDRT helps with that.

“Because MDRT is global and not a specific country, it’s not about compliance or regulation; it’s all so different for everyone, it would be pointless. It’s about how to better serve your clients, become a better adviser, run a better practice.”

Constant change

Hamilton has seen significant change over the 13 years he has been an adviser. The push towards requiring Level Five was starting in earnest when he began, and he was initially an authorised financial adviser.

“I came in at the beginning of the new requirements. Since then, and going into the future as well, it will continuously change. You’ve got to be comfortable with change as the only constant. The nuts and the bolts of it are still the same.”

He cites two positives: there’s now a more level playing field for advisers, and regulation is more principle-based, rather than a “tick-box” exercise.

Growth

Hamilton says TMX Advice is growing every day, operating as an authorised body under the Tony Mounce financial advice provider (FAP) licence. The mortgage-advice side of the business now employs about 15 staff and the insurance side about five.

“We will continue to grow as the work keeps increasing,” he says.

“It’s been growing steadily over the last few years, which has been good. Tony Mounce is a decent, prominent practice and they refer their mortgage clients to us.

“We’re quite lucky in that regard, that it all funnels through. I know it from the other side, when I had my own practice: I had to find my own work and that’s how

most advisers have to operate.

“We’re lucky – we still have to do all the work, but it’s a very warm introduction; they’ve already been into the office, met the team for mortgages, know where we’re based and we’ve got a lot of the lending information. It gives us a head start.”

He says it can be hard to find new staff. An adviser was hired recently, but it took a few months to find the right person.

People need to be qualified before they begin, so businesses must either find someone who has done a qualificationbut not yet found their ideal spot within a practice - or be willing to pay for someone to go through the process.

“The thing is there are really good advisers everywhere, but a lot of them have got very successful at running their own practice in a good environment.

“It can be hard to find good quality advisers who are also looking for a change.”

̒We’re not competitors. There’s enough work out there for everyone. And we’ll do better the more we help each other’

Opportunities abound

Hamilton is excited about the future for advice. He says compared to those in many other countries, New Zealand advisers are lucky - and in a good position.

“The fact that we are one of the most underinsured nations in the developed world [means] the opportunity here is massive.”

One of the things he first liked about advice was that there was no cap on what people could do: the harder they worked, the better their results could be.

Getting around all the New Zealanders who need advice will be the next challenge, he says.

Industry bodies also need to advocate strongly, to explain to people why good advice is necessary.

“I know they are, but how do we do that even better? Whether it’s Financial Advice New Zealand, dealer groups or providers, they’re all doing their best. Some are advocating at government level but [there is a need] for more at awareness level for New Zealanders.”

He points to surveys showing that people who have financial advice are usually left better off than those who don’t.

“A lot of people don’t get financial advice because they think it costs too much or they don’t understand and think it sounds complex. How do we engage them better to improve those numbers now we know the actual facts?

“It’s hard, and we can’t put that on anyone. Whether it’s the Government, industry bodies or advisers, it needs to be a collective effort from everyone: everyone has got to keep flying the flag and hope more and more people take advice.”

Hamilton has been working on making sure he doesn’t lose facetime with his clients.

A recent survey that showed a typical adviser was spending only 11% of their time working with clients made him stop and think.

“If you work a 40-hour week, that’s just over four hours. That’s where advisers generally enjoy their time, talking to clients, giving advice; the fact they are spending 89% of their week not doing that… is quite a shame I think.”

A challenge across the industry is how to improve that, he says. “I was quite shocked… 11% is low.”

Part of the answer may be through tech - and AI for some advisers.

“Ours wasn’t 11%, but it wasn’t 100%so we set a target of 50%. I want to know that 50% of the week, I’m giving advice. I think that’s an acceptable limit.

“The challenge is that 11% is low and it’s reducing over time as more obligations are added.

“How do advisers get the support and resources so they can spend more time delivering advice, rather than behind a screen doing compliance or preparing documents? That’s how we can improve our underinsurance problem.”

Work-life balance

Hamilton is also trying to find ways to get his schedule in check so he can carve out sufficient time for his young family.

“I’m slowly working towards being more disciplined: choosing to work when I want to, rather than being reactive to client schedules all the time – limiting it to one appointment at night and not doing work at the weekend.

“Over the last year it’s improved, but not to the extent I want.”

It's something he’s been picking up tips on from other advisers.

Hamilton says that sort of collaborative approach is something he’d like to see the industry embrace more and more.

“We’re not competitors. There’s enough work out there for everyone. And we’ll do better the more we help each other, share ideas with each other.

“If you’re curious and interested about clients and wanting to help, everything will follow from that.” A

AIA Wellbeing Survey: Your health is your wealth, the importance of recovery

Financial advisers are managing stress better than they were two years ago but more support is needed for them to thrive.

BY ANDREA MALCOLM

The results of AIA’s second financial wellbeing study has found that stress is still one of the biggest issues affecting adviser wellbeing and recommends that they step up their recovery activity - taking time out of their day whether at work or home to recharge.

“Recovery is an unseen metric with a long return. We tend to put ourselves last and don’t see its value until we snap or burn out,” says AIA Vitality Coach Aaron Gilmore. “No-one intends to make lifestyle choices that are bad for them.”

The second of AIA’s financial adviser wellbeing surveyed 366 Kiwi financial advisers and found sleep was the leading concern affecting 41%, followed by the risk of taking stress leave (19%), seeking medical support (17%) and using alcohol to manage stress (15%).

Gilmore says recovery allows people to show up for themselves, their family and their work. It helps with the right amount of sleep, allows you to recharge and builds optimism.

“How can your lifestyle drive your business? What allows you to perform and be at your best? It’s very variable. Often the word wellbeing is overused but your health really is your wealth. It should be modelled and explored. It should be something that’s a cool topic. What you can achieve and how you can look after yourself.”

The study shows advisers are generally proactive around using recovery and selfcare, both at work and home. Around 61% exercise ‘often to very often’ and 54% do a hobby or other interest ‘often to very often’. Those who do so report having more energy for work, while their health and wellbeing has improved since 2021.

Gilmore who is a professional dancer and movement coach says physical movement of any type has a high return.

“The body produces wonderful chemicals and the actual cost is really a little bit of a wiggle.” In particular, he’s a fan of myokines which are chemicals secreted into the bloodstream when muscles contract. Referred to as “hope molecules” these small proteins travel to the brain and act as an antidepressant.

“Movement is free. It’s about how you interact with the world and you can have fun with it.”

However exercise has dropped in popularity since 2021, with advisers saying their most frequent recovery activities during working hours or lunch time are taking short breaks (31.6%) and engaging in social interactions or social media (20.8%). Least used is meditation or deep reflection. Meanwhile, walking or other exercise has fallen off. The report’s authors think this may be partly due to the end of pandemic restrictions.

In contrast, for recovery outside of work hours, walking or exercise (57.9%) are the most frequent activities, followed by hobbies or other passionate interests (51.9%) and social media and social interactions (46.0%). Again, meditation or deep reflection are the least used.

Since the last study the main change in recovery at home is the increase in social media and social interactions, which balances the decline in other activities. Again the report authors think the end of pandemic restrictions might have a role to play here.

Gilmore says the mental challenge is that we’ve stopped thinking about how we move our bodies. “At school we had a playground and play time. Now movement has almost become thought of as a luxury whereas it’s a necessity.

̒Values and belief tend to drive your behaviour. If you’re hungry you get food, if you’re hungry and you value yourself, you go for better food. Value what it does and let that be the driver.’

Katie Hunter

KATIE HUNTER

“Often people think recovery is about rest and being still but light movement can be recovery. WHO recommendations tend to be 30-45 mins per day of medium exercise. That’s more for maintenance, if we want to move the needle, we need more.

“People believe themselves to be time poor but you can double the value of your time by doubling up. If you’re watching TV, do a little bit of stretching. There are lots of roads to Rome.”

Some advisers reported wanting to exercise but being held back by pain.

“There are different ways of moving,” says Gilmore. “For example you can move in water, maybe go for a gentle bike. Or do you need to get rehab?”

Fellow AIA Vitality Coach, personal trainer and nutritionist Katie Hunter says we do a lot of incidental movement - our Apple watches show us that, but it’s important to lock some time out to do so.

The three Rs of Recovery

Exercise isn’t the only part of the equation. Hunter talks about the three Rs of Recovery - rehydrate, rest and refuel.

“Rehydration is a really important one”, says Hunter, “especially, first thing because we wake up dehydrated.”

On how much water we should drink, she says, the formula is 0.035 x body weight, per day - so that’s 2.8 litres for an 80kg person. “Just carry a drink bottleand know that you need to drink and refill about three times a day.”

Her top tip is to swap the coffee, which

is a diuretic, first thing in the morning for a glass of warm water, a little lemon juice and a pinch of salt. The lemon aids digestion.

Rest is crucial to our wellbeing and yet 41% of advisers who took part in the study are not sleeping well and yet it’s crucial to our wellbeing, says Hunter.

Her top tip is to have a really good evening routine starting 30-60 minutes before bed to signal to the body that it’s time to wind down. This includes cutting back on blue light by ditching the devices. Night mode is OK if you must but no screen time is better.

Other ideas for a routine are a hot drink, a bath or shower, journaling or writing out your thoughts on the day, making a ‘to do’ list for the next day, laying out what you’ll wear or meal prep so you’re ready to go in the morning.

On the importance of refuelling, a study by Southern Cross found that 64% of Kiwis eat unhealthy food when stressed, says Hunter.

Advisers can have a highly stressed environment so be aware, says Hunter. “Have good snacks (such as nuts and fruit) on hand. Fruit on its own is a burst of sugar so pair it up with a protein.

“For healthy nutritious meals, make sure your plate has fat, carbohydrate and protein and eat them together. Protein makes us feel full and fat leaves us satisfied.”

Consumption of high sugars is a big concern, it’s in so many foods on the supermarket shelves so Hunter’s top tip to avoiding processed foods and eating

̒Recovery is an unseen metric with a long return. We tend to put ourselves last and don’t see its value until we snap or burn out’

Aaron Gilmore

natural is to shop in the outside aisles of the supermarket. “And when you get to the checkout, scan what’s in your trolley.”

Reframe

Gilmore likes to add another Rreframing, which is about motivation and staying on track.

“When you think about all this, if you start from the mindset of compromise, you will have a negative experience. Instead, think about how these disciplines will make you feel better.

“Values and belief tend to drive your behaviour. If you’re hungry you get food, if you’re hungry and you value yourself, you go for better food. Value what it does and let that be the driver.

“And if you find you’ve fallen off, that’s OK. It’s great when people recognise that,” says Hunter.

“It’s just about getting back into something. What meals can I prepare, when will I put time in my diary? Don’t chastise yourself, just dust yourself off and reset.”

Advisers have also found value in AIA Vitality, a science-backed health and wellbeing programme which can be added to eligible policies.

AIA partners with the Mental Health Foundation on the programme which encourages a healthy lifestyle through activities, services and support.

Another initiative, AIA MyCare offers advisers a second medical opinion on any medical diagnosis, and provides access to a range of medical experts, including those specialised in mental health. From mid-March, AIA MyCare will also have a new nutrition offering. A

AARON GILMORE

Be a tortoise, not a hare

Investment success is more likely to occur by being boring, not exciting.

For investors and advisers, a transition to more buoyant sharemarkets has been a long time coming.

Since the end of 2022, investors and their advisers have had plenty to fret about: rising inflation, rising interest rates, looming recession, margin and profit contraction.

It’s the uncertainty we hate. When will inflation fall? When will central banks stop raising interest rates? Will interest rates fall – and, if so, when? Who will benefit most from interest rates falling?

Through this period of increased uncertainty, exacerbated by the economic and political waves created by the Russian invasion of Ukraine, it would seem relatively easy for investors to ignore their financial advisers’ advice: to lose faith in the sharemarket as a means of wealth creation, to bail from investment funds, and to shift money to bank deposits and reallocate your KiwiSaver to a conservative option. Do the tortoise

It is in environments of heightened uncertainty where financial advisers can add the most value to their clients by ‘doing the tortoise’ and not ‘the hare’. While it seemed a smart idea when I was early in my career to make significant asset allocation changes or security trading decisions, success in this activity has become materially more difficult as financial markets trading has become more dynamic and competitive

on the back of technological and regulatory developments.

Successful investment ‘hares’ are an increasingly rare breed, usually identified after their best years are behind them. Hence I’m a sceptic regarding any fund manager or investment adviser who seeks to add value through either material changes in portfolio asset allocations or high levels of security trading. This scepticism is heightened when it comes to hedge funds.

which constructs a portfolio based on a well-diversified index that is financially rational in its design. Fully invested at all times, plodding through the periodic setbacks, but ready to fully participate in market rallies, at minimal cost to its acolytes.

I note that indices and therefore portfolios constructed on market capitalisation alone may not be financially rational at all times.

Another tortoise breed is the patient

‘I’m a sceptic regarding any fund manager or investment adviser… who seeks to add value through either material changes in portfolio asset allocation or high levels of security trading’

Success will come every so often, but ultimately losses or missed opportunities will more than offset periodic ‘wins’. Combined with higher trading costs, this pretty well guarantees underperformance over the longer term, which is what matters most: investors will usually have multi-decade periods to invest in order to achieve their lifestyle objectives - especially those in the post-full-timeworking period.

Having identified and discarded most of the hares, I’m keen to see what tortoises are out there and what they can offer.

The classic tortoise is a passive fund

fund manager who carefully assembles a well-researched share portfolio, taking a longer-term view on each company’s potential for success and regularly monitoring its progress towards its corporate objectives.

Changes to the portfolio would be limited, and usually only when better opportunities present themselves. The portfolio would be fully invested most of the time.

Slow plodding pays off

The benefits of investors ‘doing the tortoise’ have started to become more apparent as forecasts on inflation,

interest rates, economic growth, and therefore the investment outlook, become more benign and less volatile.

Only six months ago, in October 2023, the US sharemarket was still nearly 10% below its level of late 2021.

I suspect the hare would have been busy zigging and zagging between cash and shares, as new negative news competed with the likelihood the monetary policy tightening cycle would ultimately be seen to achieve its macroeconomic goals.

The tortoise, meanwhile, would have patiently continued to move forward, fully invested.

Since that time, the US sharemarket has achieved a 23% return, in which the tortoise has fully participated.

From my review of the six-month returns generated by a number of the well-known ‘hares’, their busy activities have not been so profitable over this period.

While it’s fair to say this is just one period – and a short one at that – on which to judge the merits of investing like a tortoise versus the hare, it is a useful example for your clients: investment success is more likely to occur by being boring rather than exciting. A

David van Schaardenburg is independent of any investment provider and is CEO of the Ignite Adviser Network, which provides advice to over 15,000 investment clients.

‘It is in environments of heightened uncertainty where financial advisers can add the most value to their clients by “doing the tortoise’ and not “the hare”’

Against all odds? Investment markets punch out strong returns amid share market bounce

2023 was a remarkable year for investment markets. Mercer’s 2023 Periodic Table shows a bounce back of 11 out of 16 asset classes into the positives and a notable percentage increase on most asset class returns compared to the previous year.

A study of the table, with its patchwork quilt of market results, quickly highlights

how hard it is to divine patterns, let alone predict what might happen this year. Whether the firmest of contrarians, bursting with unfailing optimism, or more likely somewhere in between, there is bound to be something in the Periodic Table that makes you pause and reflect.

basis, over the past 10 years. The myriad returns generated by markets over time underscores the challenge of discerning patterns and forecasting what may eventuate in the periods ahead.

The table, which is produced each year, colour-codes 16 major asset classes and ranks how each performed, on an annual

Some of the outcomes from last year and the decade as a whole: 2023 was the year of Global Equities. Whether on a currency hedged (+23%) or unhedged (+24%) basis, the sector

Mercer periodic table of annual investment

surpassed nearly all expectations and proved unbeatable. The Technology sector, in particular, was the place to be, with the US NASDAQ Index rising a startling 45%.

• 2023 was another year of wide dispersion between “growth” and “value” style stocks. Aided by the strength of the technology sector, there was a return difference of

25% in favour of global growth companies.

• Global Small Cap Equities (+16%) was another example of a sector bouncing back into favour. The sector joined its Equity market counterparts in the top half of the Table over the decade as a whole.

• The gloves were off for the trans-Tasman battle of the share

investment returns

annual investment returns

markets, but it was convincingly won by Australia in 2023 with that market up 13% compared to a more pedestrian 4% closer to home. All is not lost for longerterm domestic investors, however, as the New Zealand market outpaced Australia by an average of 3% per annum over the decade as a whole. A

Using KiwiSaver as insurance

Hardship withdrawals of Kiwisaver funds are on the rise, but wouldn’t insurance be a better solution?

BY RUSSELL HUTCHINSON

In the aftermath of last year’s Cyclone Gabrielle, Stuff senior reporter Rob Stock identified that hardship withdrawal rules were turning KiwiSaver into a form of natural-disaster insurance.

This is especially the case now that supervisors have been given increased discretion to approve small claims for hardship grants (up to $5,000) with lower evidential requirements.

Fund managers are generally happy with the process, relieving them of some administrative and compliance burdens, while others have worried that funds may suffer death by a thousand cuts and leave a retiree

with little. They both have a point.

Clearly there is little point arriving at retirement with a nicely protected account balance if you’ve lost everything but your shirt a couple of times along the way. Especially if most of the ‘everything’ was your home.

Retirement research shows that one of the best ways to prepare for retirement is to get a mortgage-free home. So, using a little KiwiSaver to prevent losing it is a good idea.

On the other hand, if KiwiSaver becomes yet another dip-in account, well, lots of dipping will occur. If the last decade has taught us anything, we should expect the unexpected.

Hardship withdrawals rising

Even before the cyclone and the recent rule changes, hardship withdrawal from funds had been rising – to a total of about $159m in 2021, which fell again in 2022, but rose almost to the level of 2021 again in 2023 as interest rates rose sharply.

As a proportion of funds, the sums remain small, but still affected more than 18,000 members.

Dr Simon Chapple, a policy specialist at Te Herenga Waka -Victoria University of Wellington, welcomes the trend.

Dr Chapple has suggested that in the wake of the debate about

‘If KiwiSaver becomes yet another dip-in account, well, lots of dipping will occur’

the proposed New Zealand Income Insurance scheme (NZIIS), KiwiSaver is a better form of social insurance, being more efficient and neatly limiting moral hazard; after all, the claimant is consuming their own future nest-egg. That’s a fair point.

A key criticism of KiwiSaver, on establishment, was the economic inefficiency in creating a vehicle for accumulation that is dedicated to only one purpose.

It is therefore good that the economic efficiency of being able to withdraw for emergencies, and even for first-home deposits, is being discussed.

Economic-efficiency arguments extend to current concerns about inflation. In a high-inflation environment, where employment is also very high, there are good arguments, too, that rather than worry too much about supporting incomes by implementing the NZIIS, we should raise contributions to KiwiSaver and allow more insurancelike opportunities for withdrawal. But we can’t tell if it will do the trick: the FMA’s recent reporting said

that the average hardship withdrawal was about $7,900. That does not seem like much.

Perhaps not much was needed – or perhaps not much was available. We cannot tell whether it prevented default on a home loan, or merely deferred default a month or so.

You can clearly imagine a wide range of circumstances where a contingency requires a good deal more money to navigate: disability lasting many months, a serious illness in the household, the need for a nonfunded medicine, to name just a few.

Insurance manages risk better

Thinking back to the idea of having a mortgage-free home as a foundation for retirement, and then the idea that the client might also have a retirement fund to enable some form of income, it’s easy to jump to the conclusion that it would be good to have both, not just one or the other. That level of risk management is best done with insurance.

Sooner or later, therefore, the debate has to expand to the point

where we explicitly consider the inclusion of insurance contracts within KiwiSaver.

This debate has grown, as KiwiSaver balances have become more significant. Since we can confidently predict their growth, it is a debate for which we can prepare.

It might be an idea to learn from the Australian experience of insurance included in their superannuation accounts. That includes understanding how it has cannibalised some of the private market for insurance - and the hazards of consumers believing that their insurance may do more than it is designed to do.

Sure, it might be good to develop a KiwiSaver scheme designed to address the trade-offs between a good individual market for cover and community-wide cover. But this needs to recognise a fundamental starting point: too few people have sufficient cover.

It also needs to have an explicit goal of bringing more people into the market, and increasing the size of risk pools, not reducing them. A

‘The debate has to expand to the point where we explicitly consider the inclusion of insurance contracts within KiwiSaver’

Returns are calculated to 30/04/24. Returns are calculated before tax, after fees, except for the non-PIE categories, which are after tax and after fees.

For more information about this table and the methodology behind the data, contact helpdesk.nz@morningstar.com or go to www.morningstar.com.au

© 2016 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. To the extent that any of this information constitutes advice, it is general advice and has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 and/or Morningstar Research Limited (subsidiaries of Morningstar, Inc.) without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant Product Disclosure Statement (in respect of Australian products) or Investment Statement (in respect of New Zealand products) before making any decision to invest. Neither Morningstar, nor Morningstar’s subsidiaries, nor Morningstar’s employees can provide you with personalised financial advice. To obtain advice tailored to your particular circumstances, please contact a professional financial adviser. Please refer to our Financial Services Guide (FSG) for more information www.morningstar.com.au/ fsg.asp

Wealthpoint hits 5

Wealthpoint celebrated five years at its annual conference held in Blenheim earlier this month.

Wealthpoint, which grew out of the old AMP advisers association and its group The Association, has marked its first five years at its recent annual conference.

While the group has its roots with AMP it is now much different, Head of Strategy and Growth, Mark Naylor says.

He says there has been a change in profile of the network and more than half of its members don’t have that AMP background.

There are 51 businesses that are members of the group and since it was established it has recruited 90 new advisers.

Interestingly, more than 50% of the new advisers are female.

Chief executive Simon Manning says one of the trends is that Level Five qualifications have now given support staff a pathway to becoming advisers.

These people know the business, its customers and products and they are mostly female.

Manning says the transition from exiting AMP to creating Wealthpoint “was incredibly complicated”; not helped with Covid 19 hitting soon after it was up and running.

The first three establishment years were difficult but the co-operative is now profitable and shares some of that with members.

He says the co-op aims to share its profits as well as deliver savings to its members by leveraging its scale.

Manning says they have preserved the good characteristics of AMP and strengthened the culture.

Wealthpoint is one of the only FAPs which has four pillars; life and health insurance, mortgages, general insurance and investments.

Nalder says life insurance annual

premium income increases around 40% each year; general insurance premiums have risen as prices increased and it bought a business and Wealthpoint members have around $1.3 billion of advised funds with seven KiwiSaver providers.

Succession planning has become a big part of the group’s operations helping principals get the value for their business when they decide to leave and also assisting members with recruitment.

As Wealthpoint comes to the end of its establishment phase it now looks to the next phase.

“I’d expect evolution not revolution,” Manning says.

It has recently surveyed members and 94% said they were either satisfied or highly satisfied with Wealthpoint.

It plans to meet all of its members individually this year to hear what they would like in the future A

Keynote speaker Dr Mahsa McCauley.

Wealthpoint general insurance team.

Wealthpoint CEO Simon Manning.

Adviser of the year, Nick Wells with Manning and Wealthpoint head of strategy Mark Nalder.

The Chubb team, Chris Hand, Christine Laverty and Mike Doherty.

Keynote speaker Dr Mahsa McCauley.

Lifetime Income CMO Chelsea Manning and CEO Ralph Stewart.

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 It'll be different this time; Asteron boss on Resolution deal

Asteron Life executive general manager Grant Willis is confident Resolution Life has learnt lessons from its purchase of AMP Life and won't repeat them again..

02 NZ Super a taonga we can afford as is - retirement commissioner

Claims NZ Super is unaffordable aren’t borne out by independent analysis, says the Retirement Commission..

03 Best and worst KiwiSavers according to Consumer

Kiwi-owned providers have come out on top of Consumer’s annual KiwiSaver satisfaction survey.

04 Gender pay gap and not contribution rates disadvantage women on KiwiSaver

Research by Auckland University of Technology for the Retirement Commission points to the gender pay gap as the main cause for women contributing less.

05 Only 54% of active NZ equities managers beat the benchmark index in 2023

A bare majority of actively managed New Zealand equity funds managed to beat the benchmark S&P/NZX 50 Index in calendar 2023 but less than a quarter managed to outperform over 15 years.

06 Commerce minister plans extensive financial services laws overhaul

The new government is reviewing a number of pieces of financial markets legislation to ensure it is effective and doesn't impose too great a burden on financial advisers, commerce minister Andrew Bayly told the Thrive Financial Advice New Zealand conference in Wellington.

07 Bad news for NZ is good news for bond investors: Nikko

The numbers “aren't looking all that great” for the government's budget due to be delivered on May 30, but it is good news for bond investors, Fergus McDonald, Nikko Asset Management New Zealand's head of bonds and currency told an investment forum in Wellington last week..

08 Acquisition marks significant strategic milestone for Wealthpoint

Wealthpoint buys general insurance business and now focuses on other enhancements to its offering.

09 [Opinion] Comedy of errors at the RBNZ

The development of the Reserve Bank's solvency standards for insurers makes the companies look better than they really are.

10 Pathfinder founder signs off Pathfinder founder and CIO Paul Brownsey has resigned.

Mainstreaming Impact & Celebrating Excellence.

12th of June: 2pm - 7.30pm | Maritime Room, Auckland CBD

The

Key topics covered:

Mobilising Investment

Ramping

Panellists:

Impact

Terina