Ep. 5: Who is behind the management of your KiwiSaver account?Ep. 5: Who is behind the management of your KiwiSaver account?

Brooke Roberts

Kia ora, ko Brooke toku ingoa.

I’m Brooke Roberts, one of the 3EOs at Sharesies.

Welcome to The Payoff, the KiwiSaver series about creating a future that’s more you.

Brooke Roberts

Over the course of our first 4 episodes, we’ve talked about the importance of planning for your future.

Simran Kaur

It can make a huge difference, and it just means more choice in your life.

Brooke Roberts

The various life stages… 

Georgia Burt

I probably wouldn’t been able to get the house that we’ve got if I didn’t have that as an extra buffer.

Brooke Roberts

And we explored the difference between financial wealth versus real world wealth.

Pio Terei

You know, I’m not a wealthy person, but in all those other things that I think are an important balance, I’m a millionaire.

Brooke Roberts

In this episode, let’s get practical: how do you choose who manages your KiwiSaver? 

Tom Hartmann

Pretty much it has to do with setting the right risk level for you.

Brooke Roberts

We’ll go behind the scenes with a KiwiSaver fund manager, to find out how they’re looking after your life savings.

John Berry

What industries do we want to be invested in around the world and why?

Brooke Roberts

Plus some tips on how to keep your nerve when markets go up and down.

Simran Kaur

Should I go into a conservative fund? Like everything’s dropping.

Brooke Roberts

And we’ll look at the future of KiwiSaver. Where could it be headed?

Brad Olsen

It’s literal 10’s of billions of dollars now that we’re talking.

Brooke Roberts

To kick it off, we wanted to talk about the options you have when choosing a KiwiSaver provider. So let’s start at the beginning. Here’s Mary Holm.

Mary Holm

The most common factor I think, is people look at the returns. You know, how well is this providers, um, growth fund, let's say, or their balance fund, whatever level you want to be in. How well have they done in recent years? That makes total sense, except that all the research shows that the funds that do well one year aren't necessarily going to continue to do well.

There are some providers that have, you know, had a pretty good track record but there's no way of knowing for, for sure or even fairly sure that a fund that's done well in the past is going to continue to do well. And so I say go for the low fees because they hardly ever change. Occasionally someone reduces their fees, but generally speaking the fees don't change.

And over the years, that makes a massive difference.

Brooke Roberts

So while Mary highlights fees, Simran thinks the look and feel is also important. 

Simran Kaur

You know, a provider that makes it easy for me to see what's going on. Easy to log in, easy to check something that makes me feel like it's not a chore and that just makes all the difference cause I'm more likely to engage in it. 

Brooke Roberts

So fees, ease of use—what other factors might you consider? 

Tom Hartmann

We don't really tell people to shop around for a provider, we tell people to shop around for a fund.

Brooke Roberts

Tom Hartmann from Sorted has a slightly different perspective.

Tom Hartmann

And the reason why we do that is because they have to figure out the type of fund that's right for them, and then you can figure out the provider who offers that fund. 

So, we have a whole set of criteria on how to pick a KiwiSaver fund, and if you want to learn more, you can come, come on Sorted, but pretty much it has to do with setting the right risk level for you, setting, um, making sure fees are reasonable, um, seeing the services that the provider offers, and then making sure that past results haven't been subpar, below average, although we can't predict the future, sometimes that's been a sign that fund management hasn't been the best.

Brooke Roberts

If you decide you want to switch your KiwiSaver, all you need to do is sign up to the new KiwiSaver provider. You don't even have to let your old one know.

John Berry

There's two ways that people can join us. They're either new to KiwiSaver and signing up for the first time. Or they're with a provider at the moment, like their bank and they wanna switch from the provider, which could be Pathfinder, it could be Sharesies KiwiSaver. 

Brooke Roberts

John Berry from KiwiSaver provider Pathfinder joined us in episode 3 to talk about ethical investing. But we wanted to find out a little more about what happens behind the scenes so you get to know what ‘actually’ happens with your nest egg. 

But first, let’s find out what John’s day-to-day looks like.

John Berry

I like to get a few early wins on the board and get a couple of things done. So I do Wordle first. And take the dog for a walk.

What does the day look like for a fund manager? There's heaps going on. The day goes by really fast. I sit next to the investment team. So there's always heaps of really interesting conversations going on around politics and economies and events that are happening, how it's gonna impact markets, what an individual company's worth. There's these fantastic conversations going on. I can duck in and out of those as I want to. 

And I get to meet lots of really cool people. I get to meet people who are raising capital for cool New Zealand businesses. I get to meet management and large listed companies. You know, lots of variety, lots of really, really interesting people and cool stuff.

Brooke Roberts

So what happens, when somebody decides to switch to another KiwiSaver provider?

John Berry 

The sign-on process for any manager is really simple and it's all online. And then once that happens, you can just sit back and the whole process goes on in the background. So the existing manager will send the money from your account to the IRD and onto the new manager.

The new manager goes into what's called an applications account, which is where new money goes, and then is moved into what we call the trading account. And at that point, your units are issued or your share of the KiwiSaver, your interest in the KiwiSaver, which is in units, is issued at that point, and the money then in the trading account becomes part of the fund itself.

And so it can be used to buy shares or buy bonds or take currency exposure, but it's mixed with everyone else's money in, in a big pool and invested as a big pool.

Brooke Roberts

I asked John about the different approaches a fund manager can take to investing your KiwiSaver cash.

John Berry

There are different ways of doing it. You can have passive managers who just wanna buy the market. Who just wanna buy the S&P 500. Or the NZX 50, or all the stocks in an index.

So that's one extreme. Another extreme is a very active manager choosing what they see as a concentrated portfolio of high performing stocks in New Zealand, in the US, and and Europe. 

We are somewhere in between those two where we have a large universe that we can invest in. We'll put our parameters around the geographies and industries we want, and then we will try and find the companies that will give us the best return within those geographies and industries that also meet our ethical policy. 

How do we choose them? We use a very complex optimisation process where we are scoring all these companies and then choosing the best, the best of the companies to give us the portfolio that we want, which may be somewhere between 120 and 150 individual companies. 

Brooke Roberts

So what are a fund manager or an investment team looking for when deciding on investment options?

John Berry

There's essentially two ways you can approach investing. You can approach from a top-down view, which is what we call a macro view or looking at global economic environment and where do you want to have your money. Or a bottom-up view, which is, I'm gonna research individual companies and choose the best individual company names.

So there's two different approaches. We try and bring those two together. So the the top-down view, the macro-view is, what industries do we want to be invested in around the world and why? What are the global trends that are impacting the world over the next decade that we should be invested in? What geographies do we want to invest in? North America, Asia, emerging markets, Europe, here in Australia and New Zealand, where do you wanna have your money? So you make those, you make those decisions, and then try and fit within that framework.

But essentially you are looking for a portfolio with the right characteristics around volatility, large companies and small companies, and trying to build it within your macro framework. 

Brooke Roberts

So a lot of thought goes into what happens to your money behind the scenes. And as John mentioned in episode 3, it’s a heck of a responsibility.

John Berry

I suppose that's what I love about the job, is it feels important, and it is important, managing, in the KiwiSaver space, managing money for people’s retirement.

Brooke Roberts

If you’re investing for the long term, what are some factors that you need to think about? 

It’s fair to say the first few years of the 2020s have been an incredibly volatile time for share markets and investing generally. So when you look at your KiwiSaver balance it may make your heart skip a beat.

In fact this happened with Simran from Girls That Invest.

Simran Kaur

I think when I was first investing, I was in a growth fund, and funnily enough, when Covid hit for.

In 2020, for the first week, I thought, should I go into a conservative fund? Like everything's dropping. Um, and then I remember being taught well, no. Um, if when it drops you, you almost wanna stay in there. So I stayed in a growth fund, and for me that was important because I'm not going to use that money until I'm 65.

And so knowing what my goal was and then working backwards, perhaps if I was looking to purchase my first home next year, I would be in a more balanced or conservative. Um, , but it's important to me to be in a growth fund because I have time on my side and I would much rather, um, take on a little bit higher risk for higher reward, whatever, you know, helps me sleep easy at night.

Brooke Roberts

We don’t want to keep reliving early 2020, but Brad Olsen had a similar experience.

Brad Olsen

I'll come back to the you know, start of Covid when, when the markets dropped and people were seeing some awful red ink and saying, oh, I'm, I've lost $10,000, and immediately made some big changes and moved to conservative or something, and when I need to protect myself.

It was like, well, yeah, but not really, because again, the. what you see is, is the, the expectation if you manage to liquidate or you know, if you manage to sell that entire portfolio on that one day, yes, that's the cash that you would receive, but you don't, you're not looking to sell. And especially for young people, it's sort of like you can ride the ups and downs because you don't need it right here, right now.

If you are investing for the long term, if you're not needing it in the next five weeks or so, then maybe just consider chilling out for a second.

Because the, the market does go up, it does go down, but over time, there's an expectation it will make its money back. 

Again, unless you are needing to completely sell outta that position all of a sudden, which, unless you're doing the retirement or the house.

Again, if you're sort of in your twenties or even your thirties, you're going, well, why, why do I need to change it any time soon? Yes, if you were just about to put your name on the dotted line when it comes to the house deposit.

Be a little bit more careful perhaps. But again, look, personal position at that time in, in early 2020, I was going still don't need it for another 50 years or so nearly. So I'll just leave it alone.

Brooke Roberts

if you’re feeling stressed about your nest egg, Tom Hartmann from Sorted has a simple solution.

Tom Hartmann

Well, one one thing would be not to look or maybe not to look as often because the more you look the more likely you're gonna see your balance fall because again your balance is not money you have, it's what your investments are worth at a given time. The worth of those investments goes up and down.

We don't really want anyone to lose sleep and impact their well-being. So it's really important that you have your risk level dialed to where you want it to be and have your investment mix just right. So you could either take some risk off the table or check in less often. And, uh, really, for example, you really don't need to look at it every day. It should be like maybe once a quarter a minute or once every six months.

Brooke Roberts

So let’s talk about the future. 

KiwiSaver has already had a number of changes since it started: the $1,000 kickstart was removed, default providers were changed, minimum contributions from employers and employees has increased.

Where could we go next? 

And where should we go next? 

I want to find out what some of our guests think about the future.

Mary Holm

I think the biggest change I'd like to see will be to get the really low income people into KiwiSaver including beneficiaries.

Brooke Roberts

Mary Holm is keen to see improvements on a couple of things.

Mary Holm

It's a little crusade I'm on, really. 

Three years ago I was working with the Retirement Commission on some recommendations they were making, and it was one of the recommendations that the government has actually rejected, but I would love to see them look at it again. 

And that is the idea of beneficiaries getting a certain benefit. The government gives them a 3%, 3% more that goes into a KiwiSaver account in their name. So we don't absolutely don't want to cut their benefit because it's low already, but, give that extra money. Quite a lot of the people will be in KiwiSaver anyway, but it'll probably stop contributing.

It's, you know, that they're struggling in the short term and they, they're not really, you can't really expect people who are struggling to feed the kids to be really thinking about their retirement.

But if it's quietly building up for them anyway, and then when they get back on their feet, the, it's, it's got going. If they never get back on their feet, actually it means they're going to retire with some money, you know, a few thousand dollars, which is a lot better than nothing. 

Otherwise, KiwiSaver is to some extent contributing to the growing, um, variability in people's wealth. You know, the rich get richer and the poor get poorer. And that is a trend that's happening in New Zealand and I would love to see that change happening.

Brooke Roberts

John Berry from Pathfinder hopes for a better understanding of KiwiSaver among New Zealanders. 

John Berry

I would like to see financial literacy in New Zealand generally improve, and I think we all need to take responsibility for making that happen and making sure our tamariki have a better understanding than what many New Zealanders have.

So education would be one big change. Potentially the ability to split contributions between partners. If one partner's working and one isn't, then maybe you can choose where the where the KiwiSaver is paid into. 

Potentially splitting between KiwiSaver providers. You may have a couple of providers you want to use for different reasons. Can you, you know, at the moment you only can have one provider and pull your money with that one provider. Should we be able to split? I think we'll have that debate to down down the track. 

I wanna see more investment in private assets. Private assets tend to be higher returning. And you'll see high net worth investors have a, a lot of their investments in private assets and venture capital.

It's harder in a KiwiSaver structure and I think we should be encouraging more of it, particularly when you can invest in Kiwi companies that create jobs that have an impact on the environment and society and make money for investors and, and can generate high returns for investors. I think we should be encouraging that within KiwiSaver and I think we will see more of that in KiwiSaver over time.

Brooke Roberts

Brad Olsen also sees a huge opportunity around where we invest our KiwiSaver.

It's literal tens of billions of dollars now that we're talking when it comes to KiwiSaver funds under management. It's a pretty hefty amount of cash that we can think about maybe using in a slightly different way for the economy.

So instead of just thinking at the moment, what we could look at, I think, and what it does provide is a pretty strong amount of cash that we could reinvest a bit more locally.

Could we think about the likes of infrastructure and, and similar so that New Zealanders can buy into their future and sort of help fund using their own money some of the assets that we're gonna need in the future. New hospitals, new schools, new water assets, and similar. So it's effectively just a huge amount of savings, a huge amount of cash available that we can direct into different areas.

So I think at the moment we're a bit more hands off in terms of where it goes and it goes into existing areas a lot more. But I think there's a big opportunity for the economy to use that big bundle of cash and for New Zealanders to make a bit more choice around where they want it to go.

Brooke Roberts

And here’s Tom Hartmann from Sorted, with his hopes for the future of KiwiSaver.

I'm hoping we can look more at contribution rates. I'm hoping, because we do a lot now about finding the right type of fund and setting your levels of risk and things like that, but I don't think people realise that it's a system that depends so much on how much you put in and how much money is invested in order for you to get results over the long term.

Brooke Roberts

With the default being a 3% or the minimum being a 3% contribution from you and your employer, uh, looking at is that the right percentage. In Australia, it goes up to 12% or it's going up to 12%. 

Tom Hartmann

Yeah, and unfortunately, we know that because of the way those have been set up, it sends the message to people that that's the right amount to be contributing because that's the default, but we know that's not the, not the case. So everybody really needs to make a choice for themselves about how much they’re really contributing.

Brooke Roberts

I loved what Sim had to say too. She pointed out, we’re the first generation to do this.

Simran Kaur

In New Zealand, we don't have generations upon generations of people that have benefited from KiwiSaver. So it's hard to imagine why it's so important when you haven't seen it. And so we will be that generation for our children and our grandchildren. Where they can go, well, the like uncle and aunties that use KiwiSaver are really taken care of. And those that didn't, you know, maybe not so much. 

Brooke Roberts

I think that's such an important point, realizing, yeah, we are like the role models for this, you know, the way that we, if we, if we engage with our KiwiSaver and if we talk about it, we are role modeling that for our tamariki, our mokopuna, like anybody around us. And so, and yeah, we are gonna be one of the, um, first generations to really show that so very interesting perspective. 

Simran Kaur

Yeah, yeah. For, for a lot of us, you know, KiwiSaver. We started when we got our first jobs and so we've been able to do it, whereas maybe our parents got it maybe in their thirties, forties, fifties. So they have some benefit, but we're the ones that will kind of, yeah. Well it's hard being a role model.

Brooke Roberts

Someone's gotta do it. 

Simran Kaur

Someone's gotta do it.

Brooke Roberts

And my personal hopes? Well, we here at shareises have a few thoughts, and you’ll hear more about that in the next episode.

Brooke Roberts

So what did we cover in this episode? 

Here’s 3 takeaways.

One. It’s important to remember that Investing for the long-term has ups and downs. So when times are volatile, you need to hold your nerve. Being rash and selling out could crystalise your losses. 

Two. Transferring your KiwiSaver is simple. Consider what sort of fund is right for your risk appetite and a provider you think invests in line with your values. 

Then tell them you want to change and they’ll do the heavy lifting. 

Three. We don’t have a crystal ball to know how KiwiSaver will evolve, but what’s clear is that it has the potential to help fund infrastructure in Aotearoa. And if NZers are going to have the life they choose, it’s worth considering your contribution rate and what that might add up to. Is it going to achieve the lifestyle you’re after?

Brooke Roberts

Coming up in the next episode of The Payoff. We pull back the curtain on the Sharesies KiwiSaver Scheme.

Matt Macpherson

You know we’re competing with complacency.

Brooke Roberts

Meet some of the team behind it.

Katy Elgar

The guy I talked to was like, I just signed up in the car, I was like oh goodness I hope you weren’t behind the wheel.

Brooke Roberts

Find out how we’re doing it differently.

Matt Macpherson

We take that but we flip it a little bit, each member gets to design their own fund.

Brooke Roberts

And why does choice matter?

Leighton Roberts

We know at the moment people aren’t putting enough away, and i would argue it’s because we’re not doing enough.

Brooke Roberts

Make sure you listen to the final episode of The Payoff.