Amanda Morrall talks to Morningstar's Chris Douglas about new reporting requirements in KiwiSaver

Amanda Morrall talks to Morningstar's Chris Douglas about new reporting requirements in KiwiSaver

By Amanda Morrall

New reporting requirements for KiwiSaver providers to be introduced in 2013 will make it easier for members to gauge the relative performance of their fund, how much they're paying in fees and what they are invested in, effectively creating a "democratisation of data,'' according to research house Morningstar.

Chris Douglas, co-head of research for Morningstar New Zealand, said the anticipated changes, announced last week during the 2012 Budget, are being welcomed by the funds management sector and analysts alike as the new framework will allow an apples-with-apples comparison for the first time.

"It's not overly technical, it shouldn't be overly arduous for the typical provider. There will be interesting data points that people can finally get," he said.

Under the new reporting system, providers will be obliged to disclose information on their total expense ratios (this is the sum of all fees and expenses applied to a fund), asset allocation (the types of investments that make up a fund), portfolio managers, fund size, and performance data. It's all great.''

At the moment, there is no consistency in how KiwiSaver providers are calculating fees and expenses, how that information is communicated to investors and also how performance is measured. As a result, some providers have refused to participate in league table comparisons and analysis.

Douglas said the new rules will fill a void in KiwiSaver regulation.

"The other problem we had is that the industry body wasn't actually coming out there and putting forward what they thought was the appropriate methodology and there wasn't enough of the industry going out there and self-regulating themselves. So the  regulators needed to put forward the rules and calculations around total expense ratios. And that's what happens globally.''

While the average investor won't likely notice a big change, Douglas said the accessibility and universality of the data will allow for more meaningful and accurate research by analysts, academics and the media.

Douglas said the Ministry of Economic Development's new guidelines will streamline the information for investors so relevant information is presented on a standard template published on a quarterly basis.

The information will also be required to be posted on provider's website as well as the regulator's website.

Eurozone impact

The on-going debt crisis in Greece and the possibility of the eurozone break-up has dragged superannuation funds down across the Tasman, however here in New Zealand the impact has been muted.

That's because unlike Australia, where default funds are 50-60% exposed to growth assets, default funds here in New Zealand are conservative, with an 80% weighting of cash and fixed-interest.

Douglas said that's spared KiwiSavers from suffering any major losses related to eurozone investment jitters.

As KiwiSaver is a long-term investment,  Douglas said members needn't panic or lose their perspective.

"The important thing to remember is we had this conversation three, six, 12 months ago and it's going to keep coming up. Everyone talks about us being a heavily indebted society but that's not going to go away in the short-term. There's going to be a re-rolling of debt that comes into play. It creates great headlines, it creates volatility in the market and scares people to a degree and creates negative returns as well in the short-term. But you have to remember we have had these issues for three years and over that time, growth assets have actually done okay.''

Income vs growth

Douglas said KiwiSaver's regular savings architecture will bode well for investors, many of whom could afford to be in more growth oriented funds.

"We (New Zealanders) love yield, and we love income, and so naturally people are more biassed toward investing in a more moderately balanced portfolio or defensive.

"Very few people with KiwiSaver are investing their full lump sum of retirement assets into the markets. The majority will have 10, 20, 30 years to retirement so they are going to be drip feeding money into their KiwiSaver account. Volatility is brilliant for these people. It goes against our natural instincts to think about it but the fact that we are continuously putting money into the markets and when the markets fall you're buying at these lows and they bounce back again. You can actually get some great returns.

That's why you want to be in the growth assets as well to get the sharp acceleration of the markets and capture the returns when they go up."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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8 Comments

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Can KiwiSaver funds have "reserves"? Show us where this is allowed.

 
If your source is that link, then you are being horribly misled.
Here is what is said at that link:
"Well, that’s nice but then how come the savings account interest was higher in year 2011 that the total profit in most Kiwisaver conservative funds? Something doesn’t add up here. All conservative investments other that cash in savings accounts should provide higher returns. Why are they not? Well, ask your KiwiSaver fund manager for an explanation. We suspect that these funds are mismanaged and there other forces in play to funnel the money away from the funds. You can’t see these forces, but they are there. Maybe fund reserves? Or other undisclosed fees? Or perhaps both?"
A conservative fund should ALWAYS outperform a savings account? Anyone with a basic understanding of the facts can see why that isnt true. That howler alone makes the unsubstantiated supposition in the rest of the paragraph invalid.
The writer is grossly ignorant and paranoid. The article will only appeal to people who are the same.

"If conservative fund should not ALWAYS outperform basic savings account then why savings account was not offered as one of Kiwisaver's options?"
There are loads of KiwiSaver Cash funds. I think almost every KiwiSaver provider offers one. Did you not know about them? Thats embarassing. So all that has been proven is that you are incredibly ignorant of basic facts.
In any case, KiwiSaver is a retirement savings scheme, and people investing for decades can afford to take on some voltility. Conservative funds can underperform cash over shorter time periods, like 1 year, or even 3 years, but are expected to out-perform cash over longer time frames.
To put it the other way, even though a savings account will outperform a conservative cash fund over some time periods, it isnt expected to do it year after year, or over the long term.
To make sure I have made myself perfectly clear, and to avoid you posting another ridiculously wrong-headed comment, I didnt say that Conservative funds SHOULD always UNDERperform a savings account, I said that Conservative funds MAY NOT always OUTperform a savings account.

So you concede all the other points and we move on to this single one? OK.
 
Well, a savings account is in effect a loan to the bank. How many people pay fees on money they lend?
 
KiwiSaver providers arent borrowing the money from you. KiwiSaver managers do not lend that money out for more than they are paying you for it and then keep the difference. They are managing your money on your behalf, thats what the fee is for. There are costs in doing that, even for a cash fund.
 
KiwiSaver managers ARENT stealing from you, and I have never seen any evidence that they create "reserves" to syphon off your funds to their own balance sheet.
 
Other than your own paranoia, what proof do you have?

"In principle both are the same thing. "

No, in principle AND practice they are different things. The people you hire to manage your funds are not the same people who borrow money from you to lend to others at a higher rate. They do different things. That is why one of them YOU PAY, and the other one PAYS YOU.

 

 
" I want to invest my money with Kiwisaver and be certain what I get upfront."
I want to invest my KiwiSaver money in individual properties around the South Island. No wait, I want to invest my KiwiSaver money in a single stock. No wait, I want to invest my KiwiSaver money in an option that SHORTS that single stock. No wait, I just want to invest in physical gold. 
 
None of these are options under KiwiSaver. I could describe a hundred others.  The fact that your desired option is one of hundreds not available, does not prove anything. KiwiSaver is not compulsory, so if it doesnt provide you with a suitable investment option, stop whining and opt out.
 
BTW, KiwiSaver is a retirement scheme, if you have a decade or more to save before retirement, there is absolutely no justification other than personal bias for having all your money in a cash fund.
 
"There are always many ways to execute it."
Describe one. In detail. Otherwise we are left with no other option than to consider you a paranoid, delusional crank. 
The link talks about reserves. Do you know if KiwiSaver funds can have "reserves"? I asked that question right at the start. Now by your behaviour, and my certainty that you are the author of that absurd article, I am willing to say I am convinced that they cannot.

Not a single thing you wrote constitutes anything resembling a detailed explanation of how KiwiSaver managers are supposed to be able to steal money from investors. All you have done is assert without justification that I am angry, and described some other people who might be angry.
 
I can think of other more cowardly ways to avoid a debate in which you are being demolished, but not many.
 
You said there were lots of ways that KiwiSaver managers could steal money, as if they were all obvious. I asked for details on one. Should be easy, right? Go ahead then. Your credibility relies on how well you answer this in your next comment.
 
And are you calling KiwiSaver a ponzi scheme? 
 
I destroyed that idea here: http://www.interest.co.nz/kiwisaver/57520/kiwisaver-provider-anz-wealth-calls-end-permanent-default-funds-suggests-lifestages-
 
KiwiSaver scores 0/8 in the Looking-like-a-Ponzi-Scheme game. Care to play?

1. I hope this isnt in order of importance. If the govt can just seize your KiwiSaver money, then they can also do the same thing to all your money. 0/1
2. Changing the rules? This is just a repeat of the first one. The money in KiwiSaver is yours, if you are worried the government will steal it, then you should be just as worried about all your other money too. 0/2
3. This isnt even a valid response. All you are saying is "they will find a way to steal your money, and they are planning it right now." This assertion is completely unsubstantiated. It is just paranoia. 0/3
4. Fund accounting doesnt involve rounding on billions, any accountant that does so is not skilled. The valuation of almost all stocks or bonds in a portfolio is based on actual market prices. It is the market value, not the estimated instrinsic value that is used in unit pricing. Even when a market price is unavailable and they have to use some other method of valuation, the error is as likely to be on the upside as the downside. Besides, none of that involves a transfer of wealth from you to them. At worst, you have some equity issues for people in the fund, but thats about it. 0/4
5. This is the closest you get to something worthwhile. It IS possible that investment managers recieve money or favours for particular portfolio choices. But the costs to analysts is not zero. It is very difficult to differentiate between a trade that occured because of some arrangement that benefits the analyst, and one that would have been made anyway. Mostly you would see these things in IPOs and th like, and those only make up a tiny portion of any diversified portfolio. But I will give you a half for this, because the possibility may exist, though it is hardly widespread, hardly significant, and hardly unique to KiwiSaver. I would equate it with the risk of any financial relationship, like hiring an accountant.
 
0.5/5.0
 
Feel free to keep going, but your strike rate so far has been woeful.

SIR Michael Cullen ?       thats the worst April fools joke Ive heard this year and its not even 1 April.   What on earths that about ?     surely not for "Services to Working Families,the PSA and the  Toll Rail Balance Sheet..."
BTW how come that awesome science  fiction writer Mr Nicky Hager missed out again - on the above logic he'd be a sitter for  Services to USA- NZ military relationships"
Sir Ken Ring anyone ?    (services to Dept of Treasury forecasters etc )
and so on