Morningstar is extending coverage of NZ domestic equity managers while cutting a number of bank-backed KiwiSaver products from its research roster.
Chris Douglas, Morningstar Asia-Pacific director manager research ratings, said the group had added Castle Point Funds and Nikko Asset Management to its list of formally-reviewed local share managers.
“We’ve also added coverage of Milford’s diversified strategies,” Douglas said. “The domestic equities space in NZ is in a really good space at the moment with a lot of good established managers and newer entrants like Castle Point getting traction.”
At the same time flagging demand from financial advisers for research on bank-affiliated schemes in particular would see Morningstar drop some KiwiSaver products from its ratings process.
In its latest KiwiSaver quarterly review Morningstar covers some 145 individual products issued by 16 underlying providers, equating to about $43 billion as at the end of September (compared to total market size of $45 billionish at that date).
The report, authored by Douglas, says the current default KiwiSaver system, which ties auto-enrolled members to conservative investment strategies, needs reform.
He said the approach, which relies on default providers pestering members to shift to “the right risk profile”, had resulted in a lot of effort for little reward.
The Financial Markets Authority (FMA) lambasted KiwiSaver default schemes recently for back-sliding on legal obligations to teach members how to save appropriately.
“At this stage, we don’t think it’s appropriate to use our powers under the KiwiSaver Act to require remedial action from providers to address this issue,” the FMA 2017 KiwiSaver report says. “But, we do think it is clear that default providers need to do more to better engage their members.”
However, the Morningstar report says feedback from providers suggests it is “incredibly difficult to engage the disengaged” – a problem not limited to the NZ market.
While laudable, Douglas said education was a long-term effort, which could short-change a large swathe of current KiwiSaver members.
“NZ won’t suddenly become financially literate overnight,” he said.
The Morningstar report says after 10 years in operation the government should consider shifting default investment settings to a more aggressive stance such as age-based asset allocation.
“Or maybe allocate everyone to a Balanced Scheme with an equal allocation to growth and income,” the report says.
About 20 per cent of KiwiSaver assets in the Morningstar database are in default funds.
The global research house is also trying to address the growing problem of matching investors to products under new client ‘best interests’ duties that are entering the regulatory vernacular in many jurisdictions.
Last month, Morningstar rolled out the ‘Best Interest Scorecard’ in the US designed to help financial advisers “assess the net benefit for their client of changing to their proposed plan and portfolio from an existing one”.
Douglas said the Scorecard, not yet available in NZ, offered multi-factor quantitative evidence that supported any investments choices financial planners make on behalf of clients.
Under the Financial Services Legislation Amendment Bill currently before Parliament, a broadly-defined population of advisers will be required “to place the interests of the consumer first”, the official summary document says.
“I would like to bring the Scorecard to NZ at some stage,” Douglas said.