Seeking higher returns costly

Sam Stubbs. Photo / Herald on Sunday.

Some New Zealanders are switching KiwiSaver providers several times a year, a practice those offering the schemes say is costly and ill-advised.

Asset magazine's annual KiwiSaver survey shows 1261 savers changed their provider twice in the year to March 31.

Another 204 changed providers three times, while 25 switched four times. Thirteen switched providers five or more times.

The Inland Revenue Department's annual KiwiSaver report shows the total volume of scheme transfers doubled in the year to June.

There were 123,308 transfers in the 2010 year, up from 62,719 the previous year.

The report noted that transfers peak in May each year, "likely triggered by members receiving annual investment statements in April".

The growing number of transfers could be viewed as a sign of competition in the market. "On the other hand... the trend could suggest that members are chasing short-term returns rather than taking a longer term investment perspective," the IRD said.

Asset publisher Philip Macalister said that might be true of some members, but providers such as Gareth Morgan and Huljich had done big marketing pushes to win customers from competitiors.

"I'd say that the transfers are actually being driven by the number of providers who are very aggressive in terms of promoting KiwiSaver."

The banks had also been effective. National Bank, Westpac and ANZ were among the top five providers to gain a positive net inflow of funds to their schemes in the March year. "When they ramp up their networks to achieve a goal they can be incredibly successful."

The number of new KiwiSavers has slowed. As at November 30 the scheme had 1.59 million members, with around 30,000 new savers signing up each month. This is considerably fewer than the 60,000 a month who joined in the scheme's first year.

Milton Jennings, chief executive officer of KiwiSaver provider Fidelity Life, said two to three transfers a year was "absolutely ridiculous".

"And they're probably not doing it on a rational basis either. It's just putting a lot of costs on the industry."

As the amounts in KiwiSaver funds started to build up, people needed good advice around their risk profile and what sort of asset mix that they needed to have in their portfolios.

Sam Stubbs, head of investment management at provider Tower, said KiwiSaver was a low-profit business. It was easy to sign up and transfer membership, and Tower had 90,000 clients with funds of about $5000 each. "That's a lot of administration," he said. 'KiwiSaver has all the retail costs at wholesale margins."

Fund managers needed to take a long-term view and, as the money built up, the competitive edge would be in the advice offered to customers.

"There's going to be plenty of opportunity for high-quality operators."

There would be a huge investment in IT, providing clients with better internet access and the ability to build their own schemes.

In Australia, one third of funds were self-directed with members choosing what was in their portfolios, and that was the way New Zealand would go, Stubbs predicted.

Switchers:

1261: Two times

204: Three times

125: Four times

13: Five times or more