PAUL MCBETH: Whose KiwiSaver money is it anyway?

Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years. His KiwiSaver has been with Milford Asset Management’s active growth fund since 2014. He’s been a customer of Westpac NZ for decades and ASB since 2016, while Curious Media banks with BNZ.

KiwiSavers are continuing to vote for investment specialists when it comes to their retirement – and first-home – schemes, with the big four banks losing another net $2.71 billion to rival providers through the March financial year.  

Don’t worry too much though – the big four are still managing a collective $66.61 billion for roughly 1.77 million of the country’s 3.47 million people in the scheme, even if that share of funds under management has shrunk to 45% from about 59% in June 2017. And in the March year, they collectively pocketed $378.7 million in fees, up 8% on the prior year.

For the banks, it was always going to be a tall order for them to maintain their moat of invincibility after their early land-grab when people weren’t overly interested in their modest savings.

Back then, the banks found offering every financial service under the sun was a great way to keep those hungry borrowers on the hook and less inclined to shop around for a sharper deal. There’s a reason utilities love bundling.

But the tide for the big four has been going out for a number of years as KiwiSaver balances blossomed – independent economist Cameron Bagrie used to point out people would start paying closer attention once they hit the level where you could buy a second-hand car. The average balance is currently $42,600, more than twice the $15,000 or so a decade ago.

ANZ is still waving farewell to more customers than any other provider, with a net 25,800 customers taking their $1.31 billion elsewhere in the March year. That accounted for roughly 4.7% of big blue’s opening funds under management for the March year, but with $24.01 billion as at June 30, ANZ still claims the biggest market share.

Meanwhile, second-placed ASB shed a net 8,200 customers with $540.7 million in the March year, a more modest 2.7% of its opening funds under management, ending June at $21.73 billion. Westpac’s $527.2 million of net transfers to other providers and BNZ’s $338 million rounded out the action for the fifth and eighth-biggest managers, respectively, overseeing $13.57 billion and $7.29 billion of assets.

Everybody knows that it’s moving fast

The high-profile investment specialists have been quick to pounce. Just look at how many television segments and traditional media slots are sponsored by fund managers these days.

And the transfer market was busy, climbing 14% to 186,000 or so people switching providers in the March year.

As we pointed out the other week, Milford Asset Management has been the big winner, with a $2.01 billion net inflow from other schemes through the March year, or almost 20% of its funds under management at the start of the year. With $15.88 billion under management at the end of June, it’s the fourth-biggest KiwiSaver manager.

Meanwhile, Generate Investment Management remained in vogue, attracting a net $771.8 million in the year, or 12% of its opening funds, and held on to its sixth position in the market rankings with $9.67 billion under management.

Fees obviously aren’t the only driving force here – both Milford and Generate make a virtue of their more expensive active management and are among the top-performing operators where their funds have been running for at least 10 years. Milford’s KiwiSaver fees jumped 34% to $83.3 million in the March year, while Generate’s fees climbed 27% to $88.7 million.

Nor is it simply a case that high-profile investment specialists are all winning at the banks’ expense.

Everybody knows that the boat is leaking

Fisher Funds experienced quite the exodus, with a net outflow of $813.6 million across its three schemes, or roughly 4.6% of the opening funds under management.

Only Fisher’s $716.8 million defensive conservative fund, with its 4.5% annual return, was among the leading performers tracked by Morningstar on a 10-year basis. Its $4.4 billion growth fund delivered a 8.9% annual return, sitting in the middle of the pack, while its $4.31 billion balanced fund was a laggard in the research house’s 10-year rankings, generating an annual 6.9% return.

Still, Fisher eked out a 4.5% lift in management fees to $157.7 million in the March financial year, and is still sitting pretty as the third-biggest provider with $18.61 billion of assets at the end of June.

And there were plenty of transfers for the cost-conscious KiwiSaver as well. Kernel Wealth’s net inflow of $335.5 million almost doubled its funds under management to $817.6 million in the March year. That’s since grown to $1.14 billion under management at the end of June, more than twice the size of a year earlier, and leapfrogging Sharesies.

The DIY wealth platform Sharesies had its own stellar year, more than doubling its funds under management in the 12 months ended March 31 to $820 million, with $425.2 million of net transfers into the scheme. Since then, Sharesies’ KiwiSaver funds have grown to $930.6 million at the end of June.

Everybody wants a box of chocolates

This, of course, is merely cherry-picking some of the high-level shifts, because as much as there are incentives for the various providers to siphon off some of the major players’ customers, the real value to them is simply being a part of the scheme and letting people’s pay packets do the heavy lifting.

In the March year, people’s paycheques injected $6.47 billion into the schemes, with another $58.5 million chipped in voluntarily, while employers put in $3.56 billion, and the government’s tax credit amounted to $1.02 billion – helpfully ignoring the $739 million PIE tax on investment gains.

All told, members, their employers and the government put $11.11 billion into KiwiSaver providers in the year, more than the $10.7 billion of investment gains in that period. Meanwhile, managers were paid roughly $940 million to manage the deployment of $138.7 billion by the end of March, when the world was fretting over how hot the Middle East conflict would get.

If we boil that down to the mythical average person on a $53,000 salary, they stumped up $1,865 of their pay to their KiwiSaver account, while their employer threw in $1,026, and the government contributed $293. Their investment manager’s clever choices – or general market tide, take your pick – generated a return of $3,083, of which the government took a $213 slice and the manager claimed $271 for their hard work.

Those numbers get bigger every year, and while we might begrudge some of the costs that come with our ever-expanding fund managers, the growing appetite for switching shows KiwiSavers are more than happy to vote with their feet.

Not that the biggest managers seem to mind, because if the PIE keeps growing as it is, losing doesn’t necessarily mean losing.

Image from David Zieglgänsberger on Unsplash.