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The two most important factors that really matter when it comes to investing are how your money is invested and the value of your investment when it comes time to withdraw it.
KiwiSaver is one of the few investments where you can have little interest in investing and can remain essentially disengaged from it, while your future is riding the markets.
This has led to a huge portion of New Zealanders being invested in KiwiSaver through their bank, without having checked the basics – where is my money going, and how much is it growing?
Despite only 32% of people truly feeling that banks are trustworthy and only 20% believing that the banks had the customer’s best interests at heart, a large portion of KiwiSaver members continue to have their KiwiSaver with their bank.
Canstar provided a list of the top 10 KiwiSaver by pure number of members in March 2022, and 9 out of 10 were banks, with ASB, ANZ and Westpac each listed more than once.
In my experience there are four main reasons why people use the bank option; apathy, visibility, security and fees.
The most common reason given to me as an adviser for being with the bank is that the client didn’t make an active choice to start with, and this makes sense, as 6 of the original 9 default providers were banks. However in December last year over 234,000 people invested in KiwiSaver default funds had their money moved as part of the reassessment of the default KiwiSaver providers. Following this reshuffle, AMP, ANZ and ASB all lost their default status, a reflection on the lack of engagement made by the banks with their members.
Clients often acknowledge that they know the bank may not be the best for them, but comment on how much they love visibility they have by seeing their KiwiSaver fund on their internet banking. While understandable, frequent checking of your KiwiSaver is often unhelpful, (potentially contributing to the number of younger KiwiSaver members who made knee-jerk fund changes during Covid) besides which, most KiwiSaver providers have an app which can give you visibility as easily as your banking app does!
For the generation that had KiwiSaver introduced partway through their careers the issue is less about visibility and more about a lack of trust in the scheme. What many people don’t realise is that the rules and regulations of KiwiSaver mean providers must use an independent third party to hold the actual funds. While your provider will make decisions about your money, and this will involve losses and gains depending on your fund choice, your provider cannot access your funds even if they were to go under themselves. For both providers that Velocity Financial work with the funds are held by, and the providers are supervised by, The Public Trust. While there is a perceived sense of permanence and therefore stability associated with the banking world, your funds are no safer with the bank than with any other registered KiwiSaver provider.
There is also the factor that the banks (other than KiwiBank, naturally) are Aussie-owned, where many of the non-bank KiwiSaver providers are NZ-owned and operated. Following on naturally from this is the question of where your money is invested, whether that aligns with your values and how that may impact your fund’s performance. For a run down on how ethical investing works in the KiwiSaver space check out one of our previous blog posts, or if you’d like to check a specific fund, Mindful Money’s tools provide a wealth of information. As always, whether you have a passion for ethical investing or not, knowing where your money is going is always important. This is one area where an adviser can help as well, by talking through the details of how and where your money is invested, and providing support in times of crisis, as the past few years have shown.
But the crux of the matter, once we’ve ensured that our money isn’t being nicked by a dodgy finance company is whether your money is working hard and generating the returns you need for the future. The last advantage the banks are holding onto is their ability to charge lower fees, as they recoup losses from other revenue streams. However, if lower fees don’t translate to higher returns, then it’s all publicity with no genuine value add.
Looking at the remaining default providers, the ones the government has assessed as having the being sufficiently engaged with clients and keeping fees at reasonable levels, there is still a certain variation in what you’re getting back.
The Aussie banks, BNZ and Westpac, have almost the lowest fees as expected, beaten only by Simplicity. While we’re unable to compare the returns in the default funds themselves (given they were only created in December last year) we can take a look at the balanced funds offered by these providers as an indication of performance. The top performing balanced funds from the default providers are the Booster Socially Responsible Investment and Superlife’s Ethica Fund, in keeping with the trend of ethical investments outperforming the rest. It is also worth noting that the returns generated for Kiwisaver members are higher from those providers who charge slightly higher fees. BNZ, Westpac and Simplicity, with the lowest fees, also had the lowest returns from the balanced funds we looked at, generating a 5 year average of 7.79% or less, after fees and tax. When comparing funds, always make sure to compare apple with apples, and remember the cheapest offering is often not the best quality or value for money.
If all this feels like too much – don’t worry. There are a lot of factors to consider, and this is why the convenience and ease of sticking with the bank wins out for so many. But remember, you’re not alone. The best thing you can do is find yourself an adviser to talk you through it all, who you actually trust, unlike the banks!
Elizabeth.
Disclaimer: Elizabeth Tsikanovski (FSP693611) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Elizabeth’s disclosure statement on our website.