Looking closer at KiwiSaver options
Q
Are the likes of Milford, Booster, etc, safer than a bank for KiwiSaver? I am thinking most of the big
banks are based in Australia rather than New Zealand and will be interested in doing the best for their shareholders rather than their KiwiSaver members.
A
It depends what you mean by “safer”. Every investment involves risk. A typical product disclosure statement for a KiwiSaver scheme will describe risks such as investment returns risk, market risk, currency risk, credit risk, counterparty risk, interest rate risk, key person risk, liquidity risk, asset allocation risk and derivative risk.
Many of these risks apply to all investments, not just KiwiSaver. You can read up more on these risks by finding the product disclosure statement on your provider’s website.
Apart from investment risk, there is also the risk of cyber crime. According to the Financial Markets Authority, in just the first quarter of this year, 167 cyber incidents affecting New Zealand organisations were reported, of which over half targeted the finance and insurance sector. It is the role of the FMA to ensure the sector meets the minimum standards of their licences when it comes to having IT systems that are secure and reliable. Firms should be continually investing in cyber resilience, and recognising it as a necessary fixed cost, equivalent to insurance against events that might cost them much more — including their reputation. Every provider is expected to have a response and recovery plan, so they know how to act in the event of an attack and how to resume essential services quickly.
When comparing banks and investment companies, it is worth mentioning the importance of economies of scale. The rate of increase of funds in KiwiSaver — now over $80 billion — creates benefits for both providers and members. Providers are paid a percentage of their funds under management. As the size of the funds increases the provider earns more and enables them to spend more on their products and services. This may mean more investor tools, expanding their management team, and spending money on improved cyber security.
ANZ/One Answer followed by ASB currently have the largest KiwiSaver funds under management. Fisher Funds is set to knock ASB off its perch for the No. 2 spot with its recent bid to buy Kiwi Wealth KiwiSaver. The deal still needs to be approved by the Overseas Investment Office as Fisher Funds is partly owned by an American private equity firm, which has a 33.9 per cent stake in the business.
It is important to note that all funds invested in KiwiSaver schemes, regardless of who the provider is, are held on trust on behalf of the members. The manager of a given scheme is responsible for making investment decisions in relation to the funds, and for performing administrative functions. The funds are not deposits or liabilities of the provider, and therefore are protected if the provider was to face financial difficulty.
It is worth reading through information provided by providers to find one that suits.
■ Shelley Hanna is the communications manager with Peak Portfolio Management Ltd, which is a financial advice provider licensed by the Financial Markets Authority. Disclosure information is available at www.peak.net.nz or call 06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product.