kōura's launch, a report on active investing by Kiwi Wealth and a study on the use of AI in financial services
October has been a busy month for KiwiSaver and the wider financial services markets with a range of really interesting studies being published and to blow our own trumpet in a small way, with the launch of kōura.
With over 32 different providers and 200+ funds to choose from, you could say that the KiwiSaver space is crowded. Despite this, at kōura, we felt there was room for innovation as a large majority of Kiwis do not properly engage with their KiwiSaver account. Our research shows that fewer than 20% of people have access to a financial adviser to help with their KiwiSaver, so it is not surprising that fewer than 50% of people are in the right KiwiSaver fund. Being in the right KiwiSaver fund for your goals and risk appetite could mean you're hundreds and thousands better off in retirement. It's by far the most important factor towards a great retirement, even more so than the generally much-touted fees and historical performance.
We officially launched into the market in the first week of October and have been excited to see more than 70 people sign up and another 1500 people generating personalised portfolios for themselves to see how they could be better off at retirement. Have you tried asking kōura what your ideal KiwiSaver portfolio looks like?
It's been an eventful month in the capital markets, the usual uncertainties remain, a potential breakthrough with the US/China trade war has taken the US markets back to all-time highs. Brexit continues to drag on and Boris Johnson hasn't been able to engineer his exit from the EU by 31st October. Fears on the future of the Tiwai Point aluminium smelter have resulted in the NZ market falling 2% in the month. Want to know what else has happened in the markets this month? Read our full capital markets update here.
Active v/s Passive - the debate continues
Later in October, our peers, Kiwi Wealth released an interesting paper talking about the advantage of Active Fund Management. However, we interpreted the same research papers very differently to come up with a very different set of conclusions which continue to support passive investing. The paper argues that passive investing has become popular in the past ten years simply because we are currently in a bull market that has been going on for 10 years. However, Craig Lazzara, Managing Director for investment management strategy at S&P Global in an interview with Weekend Herald argues that indexing actually started in the 1970s after a disastrous bear market and while it is true that over the last 10 years markets have been up, there is no cause and effect to the performance of passive investing at all. You can read our open letter to Active Fund Managers here.
Artificial intelligence and its role in retirement savings
Artificial Intelligence is no longer this abstract notion of the future. More and more we are seeing the use of AI to power the retirement savings plans of the future. This month Invesco released a paper on this topic which we felt was a great primer on how AI can be integrated even further into the investment management process. The paper talks about three levels of complexity in which customers' data can be used to provide a better retirement savings experience. For some, it may be the simple use of a chatbot to aid customer service. Here at kōura, we are already at a 'Level 2' complexity with our digital tool being able to design individual retirement portfolios based on specific information from our customers. The next step for AI in retirement savings is to use the data collected about customers' goals and beliefs to create highly personalised interactions based on specific circumstances - something we aspire to do in the near future. If you're still debating about the benefits of digital advice, you may also want to read this post on how it can help power your retirement.
KiwiSpend - what is it and do we really need it?
The Government created KiwiSaver to help us save for retirement. Does it need to create 'KiwiSpend' to ensure those savings go the distance? According to an Inland Revenue survey, most retirees withdraw all their funds at retirement to pay off debt or travel. While KiwiSaver funds under management increased by 17% in the past year, withdrawals by over-65s were up 43% to $1.04 billion. Which is why Interim Retirement Commissioner Peter Cordtz is considering a new scheme to help over-65s draw down on their KiwiSaver funds, a government-backed annuity scheme - 'KiwiSpend'. KiwiSpend would see KiwiSaver members over 65 drip-fed an income, adjusted for inflation, to supplement their income from New Zealand Superannuation. Cordtz wants public feedback on the idea before he presents his three-yearly Review of Retirement Income Policies to the Government. But pensions expert Michael Littlewood said there was no evidence that people were making bad decisions with their money in retirement. "I haven't seen any evidence at all that New Zealanders who have reached retirement in the last 10 years have been doing silly things with the money they have received from KiwiSaver," Littlewood said. What are your thoughts?
Other Stuff We Loved This Month
Not done reading? Here are a few more articles from our peers this month that you may find interesting:
1. Happy Saver - No I don't want the rental property, thank you!
2. NZ Everday Investor - Digital Advice: Are the robots coming?
3. Good Returns - Investors are prepared to switch for ethical funds, shows report
Thanks for reading and we hope you've enjoyed our first edition of the kōura monthly! We'd love your feedback on what you would like more or less of - do get in touch and let us know.