Managed funds still recovering from 2008

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Reserve Bank data shows non-KiwiSaver managed funds still clawing back up to 2008 levels while KiwiSaver funds blossoming

30th May 11, 5:38pm by Amanda Morrall

Managed funds outside of KiwiSaver are still in recovery mode after suffering a one-two punch in the form of the national savings scheme and the financial crisis.

Reserve Bank data shows funds under management end of March 2011 (excluding KiwiSaver) are still NZ$1 billion shy of what they were end of March 2008.

While KiwiSaver funds under management have risen in that same period of time from NZ$749 million to NZ$8.6 billion, non-KiwiSaver funds fell from NZ$60.4 billion end of March 2008 to NZ$59.2 billion for the same quarter this year.

A spokesman for the Investment Savings and Insurance Association said it stood to reason the recovery has been slow because non-KiwiSaver funds suffered the effects of the market crash on top of a redirection of funds into KiwiSaver.

"The industry acknowledges that KiwiSaver has to a large extent cannibalised from other product categories,'' said Stephen Leslie.

"Those other funds have reduced as KiwiSaver took off so there's not alot of of new money flowing into to other funds.''

Leslie said the funds management industry has been transformed markedly in the last decade with some insurance mainstays demutualizing, the introduction of personal investment entities (PIEs) and then KiwiSaver. To read more on PIEs see this explanation by Inland Revenue's website.

Leslie said once popular "Whole of Life" insurance policies and endowment funds are dying a slow death.

"They've been on their way out for 10 years now, ever since AMP and National Mutual demutualised. They're an old legacy contract that will slowly disappear.''

With shareholders in line for pay-outs, the bonus structure of the products became unsustainable, said Leslie.

Unit trusts have also seen a slow erosion in volume and popularity from NZ$15 billion December 2003 to NZ$13.6 billion end of March 2011.

Although National's proposed changes to KiwiSaver (announced as part of Budget 2011) reduce the relative attractiveness of KiwiSaver, Leslie said it was the industry's view that it was still the "best option" in terms of retirement savings vehicles. (See National's KiwiSaver policy changes here).

Workplace Savings has challenged that notion and said the removal of the tax exemption on employer contributions and the halving of the Member Tax Credits (from a maxiumum of $1,043 to $521 effective July 1, 2011) meant that alternative work place schemes may in fact prove a better option for some individuals. That's in part due to some superannuation schemes having greater flexibillity in terms of access to funds before age 65 and bonus features like complementary life insurance.

(For more on Workplace Savings reaction to Budget 2011 read this article by Amanda Morrall.)

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15 Comments

by heathcliff | 30th May 11, 7:50pm 1306741803

Why would anybody in their right minds invest in a unit trust/managed fund? Their fees are appalling (typically 2.5%pa, ask your adviser for its MER), you have no say in the destination of their investments, most MF have no yield, and they are an inefficient means of investment due to liquidity requirements.

Far better to have your funds invested directly in assets you have a say in, provide yield and growth as required, and diversified in markets you understand. And all this for less than half the cost of a managed fund. It's a no-brainer.

by Gummy Bear Hero | 30th May 11, 8:46pm 1306745185

Well done guys , you've both nailed the problem with Kiwi investors ..... They take second-best options , because they're too lazy to actively manage their own savings !..... And that is bloody amazing , as if those savings came to them easily .

....... Gummy loves direct investments , the cut & thrust of global markets , the thrill of being involved directly , via the " hip pocket nerve ".

by Black Celebration | 30th May 11, 11:24pm 1306754686

For equity investments, managed funds allow you to invest in thousands of different companies. They also allow you to diversify across all asset sectors.

At best, the number of direct investments an individual can hold is limited by the time they have to devote to it. I reckon I could probably keep track of about 10 all by myself. But then I would have to work out the tax position, what the investment return is and, if it all goes belly-up, know that it was all my own stupid fault and have no recourse to a provider to get my money back.

2.5% p.a. is high though - there are cheaper ones, particularly under KiwiSaver. You shouldn't be paying anywhere near that.

by Magnum PI | 31st May 11, 9:19am 1306790386

When you let other people manage your money, you forfeit the right to complain if they invest it unwisely on your behalf.

by Black Celebration | 31st May 11, 8:44pm 1306831488

That's not true. As a consumer, you have every right to complain if the Conservative GuaranteedSafeAs Fund (with a picture of a hefty bank vault on the Investment Statement) actually invested 100% in CowboyPonzi Inc shares. The provider will be answerable because they misled you and you might get compensated.

If you invest 100% in CowboyPonzi Inc. shares by yourself directly, you can still complain but no-one will listen or care.

by Ms de Meanour | 31st May 11, 11:01am 1306796484

"They take second-best options, because they're too lazy to actively manage their own savings"

Do you do all your own plumbing, on the basis that it's lazy to call a plumber when you could with a bit of effort learn to do it yourself? Do you make your own clothes? Grow your own food? Service your own car? Cure your own illnesses and injuries? Fix your own electrical wiring?

by Gummy Bear Hero | 31st May 11, 11:11am 1306797064

Plumbers are qualified ! Most trades involve courses of study , an apprenticeship , a degree ........ But not finance . Bozo the dog can hang out a shingle , and go into business , advising investors ......

...... and who forced all those silly sods to shovel their life savings into finance companies ? Luckily for some , a gullible government decided that the tax-payer ought to bail out the lazy & stupid from their mistakes .......

[ see Magnum PI's blog above ( 9:19 a.m. ) , he puts the argument perfectly ]

by Money Man | 31st May 11, 9:35pm 1306834507

GBH

Far more people invested direct into finance companies, by about $4 to $1 (no doubt chasing the headline interest rate) than those "......who forced all those silly sods to shovel their life savings into finance companies.

How do you protect people from themselves?

by Gummy Bear Hero | 31st May 11, 11:13pm 1306840388

Mr Money Man : " How do you protect people from themselves ? "

Easy ! .... You gradually deconstruct the welfare state . You keep welfare only for the small minority who actually require it . The rest of the populence need to be taught the principles of self reliance and of personal responsibility . You get the government out of people's lives , except for the rule of law . You drastically simplify those laws , but make them iron-clad .

...... You allow individuals to grow and prosper , to innovate , to live on their terms ......

Shrink the central bureaucratic machine !

by heathcliff | 31st May 11, 8:01pm 1306828896

Gummy

There are new rules starting on 1st July, go to Securities Commission website for details. All advisers in future have to be AFA registered (Authorised Financial Advisers) which involves qualifications, experience etc. No more Bozo the dog hanging up his shingle.

by Gummy Bear Hero | 31st May 11, 11:02pm 1306839767

So I am informed , Mr Heathcliff ....... after $NZ 7 billion of investors savings have been decimated , and after the taxpayer has had to foot the bill for the bail-out of $ 2 billion more , the government has finally acknowledged that we have had a problem .......

..... bolt ..... gate ....... horse , .... ... connect the dots and re-arrange the words to suit !

by Black Celebration | 31st May 11, 9:28pm 1306834098

@Gummy Bear Hero (and others),

When you refer to people who lost money in finance companies as "lazy and stupid", it does you no credit at all. Any other points you make become hard to acknowledge as valid.

I have to speak out about these disrespectful comments because people read sites like this to learn stuff about what is going on. If these insults remain unchallenged, then it implies that we all agree.

by Gummy Bear Hero | 31st May 11, 11:04pm 1306839851

Mr Celebration :

........ for lawn states the case nicely , why risk a 100 % loss of capital , to gain an extra several % points of return .

...... I could sugar-coat my description of those investors , but will that teach them or others a lesson ? ....... What lesson has government bail-outs taught the populence !

We now have stronger rules on the financial advisory industry , this is the first corrective step , since the 1987 sharemarket tumble ........ 24 years on , and government has finally noticed that there is a problem !

Mr Celebration : If you want advice on rugby , who do you call , Brian Gaynor or Colin Meads ? ....... And if you want advice on investment , who do you trust , Meads or Gaynor ? It isn't rocket science is it . Yet $ millions got lost because thousands trusted a guy who reckoned Provincial Finance was " solid as ...... " .

..... unless investors get some knowledge , unless they take some personal responsibility , they will get ripped off again , and again .

Bernard Whimp fleeced investors of millions of wealth , in a matter of weeks , and quite legally , because those gullible recipients of his " offers " were either too stupid or too lazy to make a free phone call to their stockbroker .

Kiwi investors have gotta : 1 : Stop being so gullible

2 : Educate themselves

and 3 : Take personal resonsibility for their actions .

by Black Celebration | 1st Jun 11, 12:46pm 1306889184

So why didn't these financially energetic and educated speak up and warn people at the time? If it was so obvious, why didn't they say something? Or did you fiddle while Rome burned?

For a long time, the financial services industry and the media thought that finance companies were the cats' pyjamas and the bees' knees. Dissent, or notes of caution, were very few and far between. The expert commentaries would have been around which ones offered the highest "guaranteed" rate ! Seriously.

So the "told you so" mob need to pull their collective heads in and realise that they were probably part of the problem by remaining silent. I actually think that most have gathered their analysis after-the-fact, which is about as much use as a chocolate teapot.

by Gummy Bear Hero | 1st Jun 11, 12:52pm 1306889527

Some did voice concerns , I can think of Gareth Morgan & of Brian Gaynor trying to alert investors and legislators of the dangers ....

..... The actual authorities , Jane Diplock at the Securities Commission , and Michael Cullen at the Financial Helm , saw no problems .

Were they asleep, just plain dopey , or didn't care ?

.... They each got away without a blemish on their CV's !