By Jenée Tibshraeny
Question: “Why have you changed your KiwiSaver provider to your bank?”
Answer: “I figured it was easier to have everything in one place. Plus, now I can keep track of my KiwiSaver through my bank’s smartphone app. All I need to do is type in a four-digit pin to access both my bank and KiwiSaver details on my phone. Easy as.”
Question: “Do you have any idea how your new fund has been performing?”
Answer: “No. The bank teller, who served me when I went to tend to some other banking matters, told me the fund was doing well, so I figured I may as well jump ship.”
I take it this conversation I recently had with a fellow Gen Yer is making you wince. Common sense says you should choose a KiwiSaver provider based on its performance, not convenience.
But the reality is, we live in a “now” society. If we can’t access information quickly from wherever we are – the bus, the gym, or the office kitchen – we probably won’t access it at all.
For Gen Yers in particular, sifting through KiwiSaver statements in an arch-lever file, seems prehistoric. Not only do we want to manage our personal finances online, but we want to manage them on the go through our smartphones.
I trust those of you who take pride in your well-categorised arch-lever files are rolling your eyes at ‘the youth of today’, but we can’t ignore the fact this is where the world’s going.
The wonders of technology
ASB’s executive general manager of wealth and insurance, Nicholas Stanhope, says:
“In the same year that Steve Jobs launched the category-killer Apple smartphone, ‘iPhone’, the New Zealand Government transformed retirement savings with the world’s first national auto-enrolment savings scheme, ‘KiwiSaver’.
“Nine years later, more than 2.5 million New Zealanders have joined KiwiSaver, and one in five of them are using smartphones to engage with their KiwiSaver accounts.”
Contributing to KPMG’s Funds Management Industry Update 2016 released today, he says: “At ASB, when EFTPOS and online internet banking launched, they quickly became mainstream, and at the time it seemed the rate of adoption was fast. But ASB’s mobile app has seen even faster adoption.
“ASB KiwiSaver members, for example, are now making as many payments through the ASB mobile banking app, launched five years ago, as they are via the ASB online internet banking platform, launched 15 years ago.”
Stanhope says accessibility encourages people to pay more attention to their KiwiSaver.
“Making KiwiSaver more visible for customers via their preferred channels helps keep their long-term savings top-of-mind. This is important in the world of investments, as it can correlate to greater financial literacy.”
He notes digital platforms are also seeing an increasing number of people make payments into their accounts.
“This [digital payments] removes barriers for members who are not PAYE employees, and therefore can’t use salary deductions to contribute to their KiwiSaver account.
“…Enabling members to perform self-service activities on their KiwiSaver account demonstrates a maturing of the KiwiSaver product. It has transitioned from having its market growth driven by incentives to having growth generated by members looking to maximise their returns.
“Online fund switching is another example of this. This self-service technology development has been swiftly adopted by members.
“In the year to 31 March 2015, default KiwiSaver providers received 26,392 fund switch requests from default KiwiSaver members, who initially invested in default fund options. The largest recipients of these fund switches were growth funds and balanced funds, which have a larger proportion of growth assets.”
Digital divide puts banks ahead
I couldn’t agree more with Stanhope’s comments.
People will surely become more attentive to saving for their retirement, by having access to their KiwiSaver accounts at their fingertips, in the same way I’ve become more attuned to my spending habits since the advent of mobile banking.
But there is a “but”. Most non-bank KiwiSaver providers don’t have mobile platforms.
This I believe, may go some way to explaining why an increasing number of people are switching KiwiSaver providers to their banks.
For example, ANZ gained a net 24,298 KiwiSaver customers with net funds of $210 million in the year to March 2015 (when subtracting those who left its scheme from those who joined its scheme).
ASB’s KiwiSaver scheme gained net funds of $190 million during this time.
According to Morningstar, ANZ has grown its market share to 26.0%, up from 25.8% last quarter. ASB remains in second place, marginally increasing its market share to 18.6%. AMP remains in the third spot ahead of Westpac, while Fisher Funds (49% owned by TSB) remains at fifth.
Morningstar notes the industry continues to get more concentrated, with the six largest KiwiSaver providers accounting for 86.2% of assets on its database.
The performance of banks’ KiwiSaver funds has undoubtedly also contributed to them attracting more members. ANZ’s funds have been performing particularly well.
The Financial Markets Authority has also been investigating banks’ sales processes when it comes to attracting new KiwiSaver members. SavvyKiwi founder, Binu Paul, says there's anecdotal evidence which suggests banks have been known to offer lower mortgage rates to those who join their KiwiSaver schemes, for example. He believes it isn't a systemic issue, but happens nonetheless.
Looking beyond convenience
Bad sales tactics aside, there is of course nothing wrong with having your bank as your KiwiSaver provider. My concern is around people – particularly Gen Yers – choosing providers based on convenience rather than performance.
After all, KPMG partner and head of financial services, John Kensington, warns the average New Zealander is financially illiterate, often sticking to their default conservative fund even if they’d be better off in another fund.
This illiteracy, coupled with Gen Yers’ love of technology and banks’ savvy online presence and marketing tactics, can be a recipe for disaster.
It is for this reason I urge people not to be lured by the convenience of shiny mobile apps, but rather seek advice or use the online tools available to choose a provider on its merit.
The Commission for Financial Capability’s investor education manager David Boyle says: “Convenience is great, but that has to be aligned with having really good quality information and a bit of education around the fund that members are in, and how that impacts their overall financial wellbeing.”
While he admits convenience is one of the larger factors causing people to switch funds, he believes people will start paying more attention to the health of their funds as they grow.
Non-bank providers need to up their game
In the meantime, I urge non-bank KiwiSaver providers without good mobile phone apps to get up with the play.
Sure – you don’t want people to fixate on their balances and react to daily market fluctuations. KiwiSaver is a long-term savings scheme, so you need to think long-term fund performance.
But I fear young people and tech-savvy older people, could be missing out on the good returns offered by non-bank providers not doing enough to connect with them.
Kensington and Boyle maintain it’s only a matter of time before they improve their online/mobile presence, as they are well aware of targeting the “click generation”.
Kensington explains it’s been easier for banks to harness technology.
“When you’ve already got a platform like a bank does – where you can go online and see your bank balance, your credit card balance and all those things together – it’s a relatively small add-on to make.”
Boyle admits having a secure app does take initial investment, and while some non-bank KiwiSaver providers have jumped on this quickly, he maintains others are holding back from making balances readily available on mobile apps in the fear market fluctuations could cause members to make knee-jerk reactions.
“As an industry, KiwiSaver is still quite young… There’s been a lot of change and I think a lot of providers have been caught up with the legislative changes around the Financial Markets Conduct Act.”
Kensington concludes, there are different styles of reporting that attract different people.
While it’s a positive sign that my mate who’s changed KiwiSaver providers will now be paying more attention to her fund via her mobile phone, I hope the digital divide between banks and non-banks closes so that people aren’t sucked into opting for convenience at the expense of performance.