GRTV

Because you were part of the round table I was interested to talk about what came out of that because I thought there was some quite surprising things. Last year when we did the round table, we talked about how would managers handle a downturn? And I think last year you said that it was going to be a bit of a dog fight. It was going to go to hell in a handcart, I think you said.

Hell in a handbag, I think. That’s right.

So did you get it right?

Look, I was genuinely surprised. No one would have picked what Covid-19 was going to do to NZ investors and particularly our wellbeing, if you like. And there were a number of switches. We had, what? $1.4 billion or thereabouts moved from growth to income assets. But given there's $60 billion or thereabouts and the number of investors that did make that change, I thought it might've been higher. I guess my fear is if we have a double dip, which today feels even more likely than not, what's the resilience really going to be like then, for investors?

Overall, do you think people handled it pretty well?

I think they did. I mean, there was a lot of mixed messages in the media about it. There were some really good articles as well, but I think the providers did a pretty good job, relative to the numbers they had to deal with. And some of the switching that took place, it would have been great if they were able to help mitigate that a wee bit, but let's hope that they have a better plan for the next time.

KiwiSaver exodus to conservative

GRTV speaks with Mint Asset Management’s David Boyle, following the ASSET Annual KiwiSaver Round Table, on the Covid switching trend, robo-advice and membership compulsion.

But that was one of the really interesting things for me, because there were 40,000 people that switched $1.4 billion, and if they switched and they haven't moved back, they've actually crystallised quite a few hundred million dollars loss. So we asked the question, should providers be offering some sort of advice or intervention when this switching goes on? And surprisingly, they said no. Did that surprise you?

Yeah, it does to a point. I mean, the ability to give reasonably qualified advice is not cheap and we've got new regulation that's not going to make it any easier, right? So robo-advice may be an option in the future, but it didn't appear to be something that was genuinely well accepted by the providers that were talking at the time.

But surely the providers, you're talking about 40,000 people, so I don't know how many providers we've got?

About 31, I think – of schemes – 26 providers.

Thirty-one. And so, they could do stuff by telephone, on the internet, making sure they ask some questions, and they hadn't done it. But what surprised me is, for years we've been talking about shifting people up the risk curve, because they're in the wrong funds, and now they want to go the other way and they say, “oh no, we're not going to get involved”. It doesn't make sense to me. No, and I think there was a bit of a mixed bag of conversations around that. But I think there has to be more done in that area and how they can deliver that in an effective way that will help mitigate that risk again. Because if it happens again and we see another 25% market correction perhaps, which I'm not saying, goodness, is going to happen, but I think people are feeling a little fragile and their financial wellbeing is probably more under the pump now, given the changes in employment [security].

It’s interesting because if these people realise that they have crystallised some quite big losses, questions will be asked. And they should be.

And they should be asked. The thing is that they don't know what they've lost. Imagine if you got a statement saying: "Now, if you'd stayed where you were, you would have ..."

Well, maybe that's what they should do.

I don't know, that's a big call. Not for us to say today.

Maybe the FMA should get onto this one.

Maybe they should.

So interesting, we talked about roboadvice and no one thought it was the magic or silver bullet.

No.

And in fact, some of them were quite dismissive of robo. What was your take on that?

I was a bit surprised by that as well because I saw that as a possible lever. And like they said, it's not a silver bullet, but to invest more time in technology, I think, with the numbers, with over three million New Zealanders coming through, younger New Zealanders coming up that are more savvy with the internet and digital options. It's something that probably needs to be investigated further.

Another surprise for me is I asked about compulsion, and it was a compulsion in the scheme we have, but surprisingly again, they supported compulsion, but they supported an Australian model where it's more like a payroll tax. Where's that come from?

Well, I think it's taking into account some of the demographic changes that we're seeing, or employment conditions we're seeing in New Zealand as well. A lot of New Zealanders are employed, but not eligible because they're on contract or they've signed up with an employer saying ... Which, whether it's legal or not, needs to be tested further, is making sure that they do pay KiwiSaver on top of their contribution. Compulsion sounds a little bit self-serving for providers, we've got to be mindful of that. But I think for a lot of New Zealanders that can't afford to get into KiwiSaver, and we're seeing hardships increase, an employer contribution without an employee contribution may seem to be an appropriate solution in the longer term if we can find some commonality around that.

So what do you think? Do you think we should move more towards an Australian-type system, stay like we are, or make our current one compulsory? There you go, three choices. Put you on the spot.

While the scheme in Australia is amazing and I think they've got something like $3 trillion of FUM, it's not perfect either. And the amount of changes and the complication and, I guess, the legislative elements that are wrapped around it are pretty costly too. So I think it's finding that middle ground, I think Kiwis like to follow their own road and not necessarily follow their cousins, and I think that's a good thing. I think as New Zealanders get bigger balances, they'll take more interest in what that money is doing and where they can get a little bit more support.

We also talked about changes that people would like to see made to KiwiSaver. What would you like to see? If there was one thing you could change, what would it be?

I would really like to see … and it's on the table now … that we have a balanced fund as the option for default. But we need to manage and help New Zealanders to move up that risk curve. And that means better information [from] providers and ensuring that they are paying or making their contributions, because we've got over a million New Zealanders not contributing at all. One third, for example. Nearly 300,000 of those are children, but there's another 800-odd thousand that are not even saving $20 a week. So there's no point getting everything else right if we are in a position where New Zealanders aren't contributing.

So do you think the government will have the balls to make these changes?

Look, the devil's going to be in the detail through the default provider process. I mean, the headlines were right, but how do you actually facilitate that and transition New Zealanders into that new regime? I think that's where I hope there's a lot of consultation. And I hope the industry really gets behind the education elements around this, so that they agree on the maybe three key themes and all say the same thing at the same time and that will genuinely help New Zealanders improve their position, I think.

There should be a more united communication front amongst providers – is that what you're saying?

Yeah, I am. I think that everyone's got their vested interests in respect of their scheme, but take that off the table and get the FMA, CFFC and providers together and just identify, well, look, the next three to five years could be bloody challenging. How are we going to help New Zealanders not only stay where they are, where they hopefully should be in whatever fund they've chosen? So where do you think that role should sit? Is it the Retirement Commissioner? The CFFC?

There are a lot of different options. I think seeing the FMA and CFFC taking leadership in that area will …

So is it an FMA role as a regulator?

Well, the regulator ...

They've got quite a lot on their plate at the moment.

They genuinely have, but they've been resourced up too with the changes in licensing, and I think they're going to take a stronger education element. You can be the educator and regulator, but it's about how the rest of the industry gets behind that. And they need to be part of that.

And so, what should advisers be doing in this space?

I think advisers have done a bloody good job. We've seen that with our own business, with advice business going in. And I guarantee with those schemes that have been advised in, their members wouldn't have switched so much and they've been supported through this, which I think's actually, given the number that we have available in advice, pretty admirable.

Yeah. So that comes back to that whole value of advice and how critical it is. And that's why I was so surprised that they didn't want that around the switching.

Well, we'll see what happens in the next round. But this next 12 months will, I think, test a lot of investors' mettle and this is where we're going to need to support them. A

Yeah. Thank you, David. That's a good point to finish on.

To watch the full interview, download an audio podcast or to read the full transcript, visit:

goodreturns.co.nz/grtv

KiwiSaver – after the first big downturn

ASSET assembled KiwiSaver players to discuss the state of the industry after what some see as its first big test.

Sarah Beauchamp

ANZ

John Berry

Pathfinder and CareSaver

David Boyle

Mint Asset Management

Murray Harris

Milford Asset Management

Martin Hawes

Independent wealth coach, adviser, author

Sharon Mackay

Fisher Funds

Sam Stubbs

Simplicity

Sarah Whitelock

Mercer

ASSET: So Covid-19, big downturn. What did we learn out of that from your guys' perspective?

David Boyle: We saw … and I think every provider that had plans saw that KiwiSaver communication was a big issue. And a lot of what went on later into March, when it hit the bottom, there was obviously a lot of transfers, switching and a lot of media attention around how bad things were going. And I think that’s kind of a lesson learned that is doesn't matter how well you communicate before an event, you can tell people what's going to happen, but when it actually does people will react on an emotional level, rather than perhaps-

ASSET:So did people react, as you expected them to react?

David Boyle: You know, what was it … about $1.4 billion was transferred from growth to income out of $50 billion. I don't know how many customers that was.

John Berry: Up to 40,000 I think.

David Boyle: I thought it might've been worse than that. And perhaps the recovery, the speed of recovery has probably stopped a lot of that momentum. I guess the real risk is if we have another dip, which is very likely in my view.

ASSET:Then what will the resilience be like for that next wave?

Sharon Mackay: You walked in the door and phones were going out of control. Clients were excessively concerned about what was happening. So we had the largest volume increases in calls that we had ever seen and the depth of conversation was much bigger than we've ever seen as well. The really fascinating thing is as fast as it took off, it's settled really well. And it settled really sharply. We were expecting the call volumes to go on for quite a long time. And when New Zealand moved into lockdown and everybody started to work from home, we actually thought call volumes would go up because people, theoretically had more time. Cause they weren't traveling, going out to shops, doing other things.

Call volumes really fell off. But what we found is we really went hard on doing lots of videos, mostly from the investment team, talking about what they were seeing in the markets, what that meant to the end client. What resonated really well for clients … again we weren't expecting it … was the informality of the videos.

ASSET:You guys said the videos and you talked about Facebook and webinars. Were these things you had planned in advance for this or was that suddenly, “Oh, we got to do something”?

Sarah Whitelock: It's really interesting because we have been talking about this pre Covid about, like you were saying, it's going to happen. Do you have something there ready to go … scripted, but you don't know what the event's going to be. So you can do a bit of … bit of readiness, but in some ways you just had to respond. And I agree sometimes it was informal and you just got things out more quickly, which was really well received.

Sharon Mackay: From our perspective … all of the stuff we were doing, but we just weren't doing it at the same volume. And I think, being in that situation where you were really thinking about how did you connect with people, you had all the technology, you always had it, you just started using it. So we did. Again we weren't expecting it, but people really got a lot out of it.

Sarah Beauchamp: So I would say one thing I think we will have to appreciate is that this wasn't just an abstract financial crisis that people heard about, but didn't really have that much impact on their lives. This was a global pandemic for some people. It literally felt like the world was ending. So I think when we look at some of the irrationality that was going on, like the toilet paper, panic buying. Then I think you have to really look at the switching behaviour with that [same] lens. And in that context there was a lot of irrational activity. And I really agree with what Sarah was saying around how people were doing things to try and take control … even in some small way.

So we did see huge amounts of switching 60% in one month, 60% of the entire year’s switching activity. But we have to keep that in perspective, when we looked at the percentage of the whole base who had actually switched, it's a really small percentage – around 3% of the whole base.

I don't think we should judge members too harshly. I don't think we should judge ourselves too harshly. Obviously we're always going to look at what we could have done better, but there was a real level of irrationality around.

In terms of your question about, is this something we planned. We do have a market volatility response plan and that's based on unit price movement, but also on the media activity. Cause sometimes you can have sharp falls in unit price, but it doesn't really get into the media. And so you kind of react differently in that perspective as to whether retail investors are aware what's happening – we've got a set responses for that. And so we followed our response plan and we have … often the key messages that you give are actually the same stay the course it's time in the market, not timing, make sure you’re in the right fund for your circumstances.

So some of the key messages can be the same, but obviously the messaging around particular event, it is a little bit different.

Martin Hawes: It’s very hard to have a KiwiSaver conversation because most people are not like the people in this room. But the lesson I think we should take [from this], it's already been touched on a couple of times, is that people wake up when there's all this opportunity and you've got to look at this from both sides of the coin and that's the teachable moment. So Robert Havighurst, back in the 1950s, talked about “a teachable moment”. The time when you can actually teach people.

And I think there's a teachable moment right now because markets have bounced.

People have got the value back and it's a relatively easy conversation to say: “If you felt very, very uncomfortable back in mid-March, then now’s the time to get into the right fund because we all should be taking as much risk as we can tolerate, but no more.” And a lot of people had too much risk on board and they switched … some people, I don't think got a chance to switch. I think they would've, I think your 3% might've gone to eight or nine or 10% or something if a further wave of selling had taken. And Murray and I were talking before about that, maybe the waves of selling haven't yet finished.

ASSET: Do you think some people had taken on too much risk?

Martin Hawes: Yes. I think the biggest factor in getting the right level of risk is somebody's psychological profile and their ability to be comfortable in times like we've just had, or we are about to have, I'm not sure with that.

Murray Harris: We have always focused on getting a lot of education and communication out to our membership. And I'll give you an example. Every month we do these videos with the investment team … on a good month, you can get six or 700 views. The first Facebook video we did, which I did one of, was all from home, which was all exciting. Cause it's like, how do we get this done? And you're setting up your camera, getting your phone sound right. And [there’s] noise in the background.

We put the first one out on Facebook … “don't panic, stay the course” … 15,000 views in four days. So you go, "wow" that's … there's two things there: one the power of Facebook or social media, but two just how open people were to listen and learn – they were actually looking for information and education.

The other thing for us is the value of having as much information online [as possible]. So our portal, our app which had only launched fully in January, just got flooded with inquiry, which would have otherwise been going into our phone lines or our email. So whilst our investor services team had a double in volume of calls and emails, there was more than double that amount again, going through the portal and the app. So people were able to get information and self-serve, without us being flooded with calls falling off and lots of long wait times and also transactions.

So, we can transact online and we had a spike in transactions in fact – more than I would have thought – switching to conservative. But interestingly enough, we're at about 3% of our members went up the risk scale. So went to growth or aggressive from balanced and conservative. So they obviously saw an opportunity cause it was good. But they were doing that online.

John Berry: We did have, like you say, Murray, reverse switching of people going from conceptual balanced up to growth, which always got me excited when people were being counterintuitive about it. In fact, I suppose for us, we had to pivot from doing face-to-face and lifestyle shows and businesses and community groups to online and videos and April was our biggest month for sign ups. So the social media videos, we also did a campaign where we just sent out on social media: “Do you have questions about KiwiSaver? We have answers.” It wasn't an advertising campaign. It was essentially just answering people's questions. And then for me that was an eye opener.

The thing that struck me was either people thought the money had been stolen or they just thought: “I need to act, I've got to take control of this.” And actually communicating with someone and having the discussion of you're actually in the right risk fund. You should stay where you are or talk to your provider about that. Just gave people comfort that they were doing something and taking a step.

ASSET: So the fact that people moved up the risk scale does that indicate that financial literacy might be improving or are they just gaming?

John Berry: I think it's probably a reflection of our not being default providers. I think probably our members, well we know because we survey them, they are more engaged and they understand financial literacy more than probably your average KiwiSaver member.

Martin Hawes: I don't think you can underestimate the value of advice here. I've seen hundreds of clients over the last 10 or 15 years. I didn't have a single one ring up in any sort of panic. Whereas KiwiSaver people … we've got three million people who weren't in this before and are investors now – and this is the first test.

ASSET:So, ANZ, did you see people moving up the risk scale?

Sarah Beauchamp: We did see that. I wouldn't necessarily agree that shows a high level of financial literacy. I think it shows a little bit more understanding, at least there's an understanding of what they're invested in. And I think most advisors would give the message that KiwiSaver is a long-term investment. And that it's time in the market putting regular contributions in. It's not like trading the stock exchange uses. It's not buy, sell – bears, bulls, it's just staying the course.

ASSET:So one of the things I'm interested in with the switching, and there's been quite a lot of discussion about it … and it seems like some providers make it too easy for people to switch.

Sarah Beauchamp: You can switch in internet banking when you're with ANZ. That is a question we ask ourselves all the time. So at the moment you can't switch in the app, you can switch online on internet banking. I think if somebody has made their mind up to do something, I'm not sure that it's the right thing to do to actually block them to not do it. And I would hope that our communications, would help to educate members.

Sam Stubbs: I would say they may have made their mind up, but is it an informed decision, because the people want to take action and often they react to the last news story that they heard.

Sarah Beauchamp: Yeah. But are we actually talking about not allowing them? Cause I think someone was telling me that you'd [used] popups [when investors were looking to switch online and] they didn't really make that much difference.

Murray Harris: Well, at the end of the day, if they’ve made up their mind, they want to switch and the world's ending, they're going to do it. But at least we can warn them. And, so yes on our portal, it's a little message pops up … “You need to stay the course and switching could have long-term implications on the value”. To get them to really think about it. But they can click past that and still do it … because we didn't want to stop them if they were wanting to do it.

Sharon Mackay: I think when, when people are in their blind state of panic and you've got a bigger business, it's actually hard to reach everybody all of the time and creating delays by forcing someone through a conversation, increases their anxiety and it really pushes it out of control and minimises their trust.

Sarah Beauchamp: In the broader context, we're not just one of the services in people's lives, they are used to doing things digitally. So if we prevent people from doing things digitally we're just not meeting their expectations of the world generally.

ASSET: I'm just wondering if people actually understand the significance of it, so this piece that I was sent [said]: If you had 40,000 KiwiSavers who switched $1.4 billion, that would have crystallised the loss of $160 million a year, and if they didn't go back to the fund they were in, it's probably another $28 million a year, of returns they haven't got.

Martin Hawes: They shouldn't go back to the fund they were in. They were in the wrong fund. I don't care if they're 35 years old, they shouldn't have been in that fund, because they were too frightened. I call it “rattled out of the market”.

Sarah Beauchamp: It was a true test of the risk profile question where you ask: "If the market dropped by 20%, would you be comfortable with that loss?" It was a true... It wasn't a hypothetical question, it was a real situation.

ASSET:So, you think these people switching might have actually ended up going into the correct funds they should've been in in the first place? Is that your thesis?

David Boyle: You can talk blue in the face to ask people kind of, “How would you experience a minus 20%?”. And they've got no idea, right? I mean, at the end of the day, until you see it actually happen and go through it. And we're talking in hindsight now. If we wait another six months, we could be in quite a negative environment again and really it could be even worse than what we experienced in March. It's about what should or could we be doing as an industry. I'm kind of more interested around what are the key messages that we can take out while people remember that feeling?

And probably if you look at the FMA and CFFC for example, this is a grand time for them to bring together the industry and pull together some of the key themes. All power of one … get everyone talking about these things at the same time … but don't go back to this ... I really worry about the nanny state where basically we tell people what they should do.

Martin Hawes: I always, in my practice, ask people to tell me an experience where they lost money. Not everybody can do that, but most people can. And I feel like some sort of psychologist or counsellor or something saying, “How does it feel?”. But it's a feeling.

Sarah Beauchamp: I think [with] the switching functionality, just to be clear, of course, we've got prompts about seeking advice, of course we've got the risk profile tool available. It's just, we haven't designed ours so that it pops up so you have to click it away. My experience ... so we did have the similar thing with accidental payments, people putting their uni money into KiwiSaver. So we've got popups but the problem is, what do you do when something pops up on your phone? You click it away and afterwards you go, "Hang on, what did that say?" Right? So digital development is a challenge, it's difficult to get right.

Sharon Mackay: It's kind of such a psychological thing, the pain of any loss, whether it's financial or an accident far outweighs the euphoria of the gain. And that's what drives so much of what's happening and it's not necessarily a financial market thing, that's a human condition.

John Berry: It's also, with the loss, what we found in conversations with people is they felt like they'd lost this money overnight but if you put it in a six month context and said, “Actually you've just lost the last six months of gains,” then it didn't quite seem so bad.

Murray Harris: This was the challenge – now, for those 40,000 members that switched, and you can guarantee most of them haven't switched back, what have they missed out on? Granted, some of them may now be in the right fund but for those that are still in the wrong fund, as an industry, we've got an obligation to make sure those people get into the right fund and stick with it. Because otherwise, the long term, as you know, for a 35-year-old, what's the cost of that over 30 years? It's $370,000 for the average member.

John Berry: But Murray, if they're not wired up well enough to be able to withstand the pressure of watching their KiwiSaver balance or investment balance falling, then they're not. And we can't do anything about that.

David Boyle: Since KiwiSaver started, no one's experienced a real negative [year], even though we went through two terribly negative years in 2008, 2009, they had no money. So the impact of those losses, which were actually probably just as much as we experienced up to March, they didn't see it. So as balances grow, this is where people will see that fluctuation. And then now with the annual statements, which I think is

a really great thing, it's not only seeing what your balance is today but what it’s going to be in the future and what income you're going to get.

John Berry: There's also communication around ... when prices are off [lower] at your clothing store you go and buy, when prices are off [lower] in [investment] markets, and you're trying to explain to people: “This is great. You're contributing every month, it's cheaper.” And they look at you like you're mad. It's an education thing. We need people to understand. [With] your 30-year horizon, stuff is cheaper at the moment, it's a good time to buy. You're putting in every month. See it as an opportunity.

ASSET: Is KiwiSaver achieving what it was set out to do? And I'll ask everyone to score it out of 10.

David Boyle: From what I've seen and the impact of what has been quite an event that I've not been around for a while, I would give it probably a seven at the moment. We always have a feeling of what investors might do, but actually to go through an event like this and see what they actually did would suggest that providers have done a better job around informing, providing that information. There's still a lot more to be done obviously, but I think it's got better.

Sam Stubbs: A nine. It's democratising capitalism. Three million people who've got accounts open, and we all complain about the people not contributing, but what was the last financial product that had this goodwill, this popularity and has survived two crises without losing people.

Sharon Mackay: For me, it's an eight. I think, as a total system ... KiwiSaver has such amazing buy-in from the New Zealand public.

Murray Harris: I’ll give it an eight. I mean, there's still room for improvement, I think it's achieving what we wanted it to do. And that is to get people engaged, to think about saving long-term for their retirement.

Sarah Beauchamp: Eight or let's say eight and a half. If you think back to before KiwiSaver was born, there were 15% of people in workplace retirement savings schemes, and it was a declining trend. We've now got 85% of the 18 to 64-year-old market enrolled in KiwiSaver. So that's actually one of the highest rates of non-compulsory participation in the whole world.

It's easy for employers to administer. It's a great deal for the member. I think for every dollar they put in ... I did a really quick calculation, obviously depends on circumstances and settings, but for every dollar a member puts in, they get something like $3 back if they save over their entire lives from employer contributions, government contributions and investment performance. And we've got a thriving, competitive market. There have been a number of new entrants. The number of transfers outweighs new members to KiwiSaver and it's really easy to transfer. So yeah, I think it's a great thing.

John Berry: Overall, I'd give it an eight. I think it's achieving its objectives and there's a wide range of offerings for people to choose from as well.

Sarah Whitelock: I think coverage is good, the number of people, the amount of money in it. Mercer globally does a pension index every year. And it surveys, I think 37 countries, which picks up something like 65% of the world's population and our system rates a B. So we're about seven out of eight out of 37. So, it's pretty good, but it could be better. We are lower in the adequacy space and the key recommendations there are around increasing coverage and increasing contributions so I think that's where there's room to improve.

Martin Hawes: I'd go nine-and-a-half. KiwiSaver can't give world peace and global democratisation of capitalism, and … I don't know … apple pie and motherhood and everything else. It's not designed to do that. It's designed for retirement saving and it's got three million people. So 13 or 14 years ago, when Michael and Diane were sitting down, scratching their heads saying, “What did we do here?” And you say, “Well, there'll be three million people with a retirement savings account,” you'd have said, “Well, that would be transformational. That would be fantastic.” It's done ... yeah, look, it needs a couple of wee tweaks in my view, but they're little projects.

ASSET: If there's one or two things you could do to KiwiSaver to make it better, what would they be?

Martin Hawes: I think one of the things I would do is allow multiple funds. You can have your two deposits with one bank and with another bank. Why can't you do it with KiwiSaver? And it's probably the question I get about KiwiSaver as a practicing adviser more than anything else.

Sam Stubbs: I'd make it compulsory. It's now discriminating against the poor. That's the perverse outcome of KiwiSaver, it's going to make the rich richer and the poor poorer, relatively. And only compulsion fixes it.

Sarah Whitelock: Mine would be to improve the contribution levels … not so much saying you need to increase the contribution rates, but there are still a large number of people who are members, but are not contributing. I still think those average balances are still too low.

Sharon Mackay: I really do think we need to think about contribution rates, but we need to think about how we get some equity around those contribution rates as well. So the people that can afford to contribute will contribute, and if they're not contributing in KiwiSaver, they're doing something else.

Sarah Beauchamp: I would take a cautionary approach to changing settings. So we've seen quite a lot of talk in the market, like the recent retirement income policy review. There was lots of discussion around ideas that possibly would change the main incentives or the main purpose, like Martin was saying, of KiwiSaver. So what we found when we talked to members is that some of those really fundamental changes, they actually undermine people's perceptions of the stability of the system. And also just around ... us as a provider, I am particularly working in product. I don't agree with anything that makes the product more complex and harder to explain to people.

For the first time from 2022, providers will be able to change contribution rates on behalf of members, rather than filling out a paper form and taking it to the employer. That's good. Even if it's two years away, it's good that that change is happening. But it's actually a little-known fact that we don't even know people's contribution rates.

John Berry: Look, if I think about the conversation we had earlier on what the biggest issues have been this year, it's not so much structural with KiwiSaver itself, it's more around financial literacy and education and that would be my focus … more resource, particularly at younger ages.

Murray Harris: In terms of contribution rates, I agree it's too low. So education around that, people need to save at least 10%. Perhaps one of the ways to help that and particularly the lower income earners is compulsory employer contributions. Even if the member's not

contributing, the employer puts in, even if it's only 1%, for somebody's working life that at least gives them something.

Sharon Mackay: Actually take off the ESCT on the contributions.

Murray Harris: Yeah, well that's my next point, we need to look at the taxation of KiwiSaver because if you look at the successful superannuation systems around the world, there is relief around the contributions and also the way it's taxed while it's invested, but particularly the contributions. And I think if we really want to move it to the next level from here, it's about how do we get people to contribute more? Well, you need to give them some relief on that from taxation, whether that's the employers as well as the members. So I think there's some tweaks that can get quite technical if you get into the detail of it, but that's why I wouldn't give it a 10 at the moment.

David Boyle: Contribution rates are still really, really poor. I mean, in respect of those that aren't contributing at all, let alone getting them the maximum MTC. I would suggest looking legislatively around how, if people are employed on contract that they still have to get a KiwiSaver employer contribution built into that.

ASSET:Compulsory, can we do a yes, no, around the room?

David Boyle: Compulsory employer.

Sam Stubbs: If employer contributions are compulsory, they're already onto a great thing. But then engagement goes down because I'm not contributing and suddenly it's less important. Cause it's something my employer is doing.

David Boyle: I still think you need to educate to get people engaged and say, look, if you put in 1% as well you're going to have twice as much.

Murray Harris: This theory that people can't afford it is rubbish. What happens is they get the money and they spend it. If they don't get it in the first place they adjust their spending. You can take 1% of income away from almost any family in New Zealand and they'll adjust.

Sarah Whitelock: I think compulsion.

ASSET: So advice, how do we get more advisers involved in giving people advice around KiwiSaver?

Murray Harris: I think it's probably the single most important issue as balances have grown. We've talked about financial literacy and education. There's no substitute for getting people in front of an adviser to first of all get them into the right fund and you can use as many calculators as you like, but people need guidance. They need education. They need reminding that sometimes they haven't learned from their own mistakes, but they need [advice] to tell them what the pitfalls and mistakes are. So getting access to advice is vitally important. If there was one thing we wanted to do with KiwiSaver to make that achievable it might be that you could use some of your KiwiSaver funds to pay for that advice.

Sarah Beauchamp: I totally agree with Murray that we massively rate the value of advice. We are always trying to understand people's blockers and people's attitudes towards advice. We found that two-thirds of people have never sought advice. Incredibly, three quarters of people would never even consider getting advice until they're 10 years out on retirement, a little bit scary. And 40% of retirees regret not getting advice. Some of the roadblocks that members told us about were things like: they just didn't think they were the kind of person that would get advice: that it was associated with like a rich person

thing; that it would take too much time. The Kiwi DIY mentality really played into it. I thought the FSC research was really interesting. They were saying the 80% of people felt very confident in their own financial decisions, which I think really ties in to our stats around people aren't getting advice. They think they're confident in making financial decisions, but actually the same research showed that they're actually not, they don't understand those key ideas very much. And the same research talks about a lot of people under 52 described themselves as coach seekers. So what are the coaches they're seeking out? And I think the anecdotal evidence shows that they're asking friends, family and colleagues, which is a real worry when we think about the low level of financial interest.

Sharon Mackay: When you think about KiwiSaver advice is really important and we have to find ways of getting more advice to more people. But it can't be the way that we do it today because the complexity around the advice today is too much. So (a) I'm not going to commit the time. And (b) an adviser scares me to death because [they've] got all the knowledge and I've got none and (c) it's not something I need. Sam Stubbs: The traditional advice model is just going to die on a vine. Ultimately they won't believe the advice they get if you're only selling your own product because this thing is such a weapon of transparency. So, the world's changing and my understanding is people are hanging on to all distribution models because they have to. But ultimately people will receive advice and it will be very cheap and very high quality and very commoditised because that's how most people are built.

The commission-based models are going to die. I mean, people smell these things a mile away now. There's about 10% of advisers that are fee-based and truly independent. So, they're not getting paid as much as other people are right now, but they will because that's the only thing that can survive.

David Boyle: I think of the advice spectrum for KiwiSaver, at the one extreme, you've got basic advice people need, which is, should I be in KiwiSaver? How do I get to get more contributions? What funds should I be in? And then the other extreme is a full financial plan which you're going to pay for and it's expensive. And we just need to find ways for people to access the advice that they need at a price they can afford. And hopefully over time, as KiwiSaver balances grow and people and businesses get more innovative then they see the opportunity.

ASSET:I'm interested to know what each of you are doing around robo-advice and whether it's actually going to take off. If you look at the people who have come to the market recently with robo offerings and of which two spring to mind, you'd have to say they haven't actually done that well so far.

John Berry: Nobody should be coming to the market with a robo-advice offer thinking that they can corner the market or grow their investor base. Digital advice [is good] as a service to your existing membership. No KiwiSaver manager should be thinking they can offer digital advice and make money from it because it's not something that you could even charge for. And you look in Australia, where robo has been going for a period of time, 7% uptake in Australia, 20% uptake in the US which is a huge market. In fact, the robo-advisers in the US are making more money by selling this software to human advisers, to make their role more effective than the roboadvice itself.

Sarah Beauchamp: What we've found is that when we talk to people about robo-advice, the whole concept for full, personalised, all singing, all dancing platform, just wasn't something that they connected with at all.

Sharon Mackay: I think as an industry, we go the whole nine yards and we're going to solve your problem. And you're going to get everything. But as an individual you're probably not ready for it. So give me the one thing I need to do. What's the one thing that I need to do on my account today?

John Berry: Why not as an industry just have one standard platform that everyone uses and it's consistent because you talk about your differentiation outside that and use that money to put more into education.

Murray Harris: Well, I'm with David in the sense of when someone's offering a robo platform and their offering is just, “we are robo” that in itself is not a reason to come to KiwiSaver. But, if people are moving away from their bank, if they go to Simplicity or Milford, they know exactly what that brand stands for and what the offering is.

ASSET:So responsible investing. How much more important has that become in the past year?

Sharon Mackay: Yeah. I don't know that I'd say that the importance of it has gone up. I think the importance of it was always there.

I think as any company operating in any market, you've got an obligation to really think about how you're conducting your business and that includes, when it really comes down to it, we're handling the money of our clients and how we're conducting that as well. So the challenge there is, what does it mean? What's responsible to me, may not be to you.

Martin Hawes: It's the ticket to the game – in this day and age – in ESG and RI. And our members are going to demand it, particularly our younger members, they're much more engaged in this than the older cohort. But it comes back to an education around ...

well, just because one fund says it's the ethical XYZ fund or the exclusion ABC fund, doesn't mean that it's necessarily different to the growth fund, which might actually be applying the same principles, but it's just not named that. So we need to get people to understand that it comes back to: “How do you get your members and the public to understand what we're doing as investment managers?” And we've got an exclusions list on our website that runs to tens of pages but does anybody look at it? How do you get the message out there that you're doing this stuff, but it's not necessarily understood?

Sarah Beauchamp: As an industry, we've got a way to go with the taxonomy of responsible investing. So all the providers should have a stance on responsible investing and it should be obvious and transparent what that stance is. We are seeing some funds, just like you were saying, that are labelled ethical. So there's actually a spectrum of RI, starting with just standard and then you've got exclusions, and then you moved this through to sustainable, and then positive impact, right? And I think some of the funds that we're seeing labelled positive impact are actually, if you look at the underlying investments, it's not necessarily reflective. So I would definitely recommend that we have some ... I was actually going to volunteer for it at the FSC working group to work on some industry standard of the labelling. And also, maybe some industry standard on the things you should have on your website that describe how your labels translate to your investment approach and philosophy in your holdings.

Martin Hawes: And I think the default suggestion, they're going to exclude fossil fuels and weapons. That feels like a bit of a knee-jerk reaction to climate change and the fact that we had a terrible event here just over 12 months ago. Why just those two? If it's actually ESG, you need a proper framework around that. If it's going to be exclusions – what? And how? And why? Or is it a principlebased approach?

John Berry: I think there was a sea change four, five years ago. Can you say that? My thinking is that being SRI is about exclusions and ESG is about inclusions, it's about scrolling the screen, saying what you want rather than what you don't want. And the final thing that really, I agree with you, that I don't think fund managers should be the arbiter of morale and therefore, you've got to have transparency. Because ultimately, it comes down to, what would you pay for a subtle conscience? If indeed you have to pay? You might argue, they actually don't pay to have a subtle conscience, so you actually get better returns. ESG is good evidence, at least it is with RI.

Sam Stubbs: Although the highest judgment on these things should be on our own industry, because it's full of hypocrisy in this regard. You have companies that will exclude fossil fuel on one hand and yet, another arm of the company will lean to fossil fuel companies. You have some firms offering RI funds and make a lot of noise about them and then quietly offering non-RI ones because they want to make more money … This industry collectively, is the major shareholder of most New Zealand public companies. Shareholder activism in this country, zero. Why? Conflict of interest.

Sarah Beauchamp: I feel that that comment was slightly pointed towards the banks on the whole fossil fuel thing [laughs]. So I do actually have a pre-prepared answer for that. [Quotes] ANZ New Zealand is playing its part to support the Paris climate accord. So our lending in NZ fossil fuels is less than 0.22% of our whole lending book, and declining. And most of that is in gas, thermal coal mining represents 0.001% of our book. In fact, we lend a lot more … 0.71% to green tech and renewable energy sectors, than the non-renewable and that's greatly growing.

Sam Stubbs: How much is 0.22 of your lending book?

Martin Hawes: Hundreds of millions of dollars.

ASSET:It's still a pretty small proportion. So we're getting towards the end, are there any questions or topics anyone wants to propose for their colleagues here?

Sharon Mackay: I think it's in, I guess, the wide ranging conversation and some of the things we've touched on. And we started out by, what did we learn? How do we take these types of forums and think about improving the outcomes for New Zealanders? So we all work within our businesses, we all approach things slightly differently but we all face the same challenges. And I think I'm going to come back to your point, David, how do we have a little bit more unity around some of the bigger issues?

David Boyle: [There needs to be] alignment as an industry. But, through an impartial portal of continuity around … you'll pick three things and work together on those elements because those three things will probably impact 80% of all the things that we perhaps touched on today. To improve that will actually have a massive cascading impact on investors' wellbeing, or New Zealanders' wellbeing when they reach retirement.

If you keep working in your silos or have a biased [viewpoint] ... because of the members that are in particular groups or the size of them or whatever … You need a neutral referee to corral providers, not just [those] around this table, but for everyone who wants to do more – have someone to help facilitate that. That would be a beautiful thing.

Sarah Beauchamp: I think this industry collaborate really well.

Sharon Mackay: I think we do and we don't [laughs].

Sharon Mackay: I think we do. To be honest, I think we collaborate on operational stuff, but a lot of what we talked about today isn't operational stuff. It goes to financial literacy, financial capability. And operational greatness won't get us to someone making the right fund choice. A

Non-disclosure divides opinions

When a case is turned down for non-disclosure, it can create shockwaves. But how often does it really happen?

When the story of Ailepata Ailepata’s refused insurance claim made news headlines in June, it caused ripples through the insurance industry.

Ailepata was denied a $100,000 payout for gastric cancer because his New Zealand Home Loans broker had moved his trauma cover from Westpac to Fidelity Life.

The amount of cover was reduced and when he went to claim he was reportedly turned down by Fidelity Life because he did not disclose “impaired glucose tolerance” when the policy was taken out.

The family told media they felt betrayed.

In another case, in 2018, Shane Laker had his claim turned down for income protection when he developed trigeminal neuralgia, because he had not disclosed

BY SUSAN EDMUNDS

to Partners Life that he had sleep apnoea, high blood pressure and high cholesterol readings. The insurer said that should have meant he was not accepted for insurance in the first place.

Adviser Katrina Church and adviser coach Tony Vidler said Ailepata’s case highlighted the problem of nondisclosure.

Many clients were not disclosing information on their application forms because they did not realise they needed to – or sometimes because they did not even know that there was something that should be disclosed, they said.

It was not until claim time that they realised that symptoms of an undiagnosed illness, or something that seemed unrelated, could derail their ability to claim on a policy.

Vidler said: “Clients often, with the best of intentions, tell you everything they think you want to know then later say ‘I didn’t think that would matter. A doctor told me I needed to get my blood pressure under control 17 years ago but that doesn’t matter, does it?’”

Clients were in a poor position to judge what would be important to an insurer, he said, and it was the adviser’s job to step up.

“I always take the view that the adviser should be the frontline underwriter … if there’s any doubt or questions you’ve got to draw attention to it.”

If there was a concern about something from a client’s past, the adviser could suggest the insurer requested medical files, he said.

“The reality is the overwhelming majority of good risk advisers do that already.”

Church agreed advisers needed to do what they could to ensure that a claim couldn’t be turned down for non-disclosure.

“Advisers should be thinking, is this client really understanding what they have to do when they are filling out this form? That’s the first thing. The industry could do better, insurers could do better.” _ Katrina Church

“Clients often, with the best of intentions, tell you everything they think you want to know then later say ‘I didn’t think that would matter. A doctor told me I needed to get my blood pressure under control 17 years ago but that doesn’t matter, does it?’” _ Tony Vidler

“Advisers are the first underwriters and we should do all we can to derisk the situation for clients – this is something that online or applications made direct to providers can't. That’s our point of difference.

“Advisers should be thinking, is this client really understanding what they have to do when they are filling out this form? That’s the first thing. The industry could do better, insurers could do better.”

She said it was the adviser’s obligation to underwrite all business and “derisk” the situation for clients in a way that online or direct-to-provider applications would not.

She said the level of non-disclosure picked up through her own business’s processes was “huge”. It was a concern that there was so much business being written on standard terms, she said.

“There are many ways an adviser can lower the level of non-disclosure – ensuring the client reads their application post-submission and confirms this prior to issue, obtain medical notes from the outset, obtain ACC claims histories.

“This all gives you the tools to understand if a client knows and understands their medical history – this protects the client. Your own business picks up a huge amount of nondisclosure from highly intelligent people who just forget things.

“If I have a proposal with nothing disclosed – that’s a red flag.”

Another adviser, Tim Fairbrother, said non-disclosure was a “huge issue”.

“Your average punter doesn’t realise what information they need to divulge. We have only had a handful of issues in the last 10 years, as we go through the application very thoroughly with every client.

“Advisers need to be coaching them through previous operations and trips to the hospital, current medication, recent trips to the doctor, ACC schedules … We go back over their medical history to cover all we can, no matter how trivial.

“While this does frustrate clients at times with lots of paperwork and a long underwriting period to get cover in place, it is well worth the difficult conversations that can be created by doing a poor job upfront.”

As part of the review of insurance contract law, non-disclosure was identified as a problem to be addressed.

The Government plans to change the duties of disclosure so that consumers are required to “take reasonable care not to make a misrepresentation” – effectively to answer any questions asked by the insurer truthfully and accurately. It will require that insurers’ remedies for non-disclosure are “proportionate” to the level of non-disclosure.

The Insurance and Financial Services Ombudsman has said about 10% of its complaints relate to non-disclosure – across personal insurance and fire and general policies. Industry data is not kept on how many claims are turned down for this reason. Ombudsman Karen Stevens has suggested applications could be submitted with medical notes attached, and the onus to go on insurers to process that appropriately.

But Partners Life managing director Naomi Ballantyne said non-disclosure was not as much of an issue as was claimed – and the solution was not necessarily all the extra checking and paperwork that the advisers suggested.

She said only about 4% of all claims were turned down for any reason, and non-disclosure would only be a proportion of those that were.

“The problem with non-disclosure is that it’s such an awful thing to have to deal with. You’re effectively calling a client out for not telling the truth.”

She said the idea that a life insurer might use an unrelated piece of undisclosed medical history to turn down a claim was false. “That doesn’t happen. If it did not a single adviser would sell products from a company that behaved that way.”

Extra measures to catch all nondisclosure, such as looking through medical records with each application, would slow the process and add cost, she said. That would make cover more expensive for all the customers who had disclosed appropriately, she said.

Ballantyne said application forms were clear enough that it could not be claimed that clients did not understand what they were being asked.

Commentator Russell Hutchinson, of Chatswood Consulting and Quotemonster, said incidence of nondisclosure would vary according to the type of insurance. It was “vanishingly uncommon” with life insurance, he said, but more common with trauma, income protection and health cover.

The more claims that were made on a particular type of policy, the more likely there were to be questions of non-disclosure. A