Regulation has emerged as the number one obsession for the NZ investment industry in a new report released this week.
The inaugural BNP Paribas NZ ‘Investments & Operations Outlook’ survey, produced in association with Investment News NZ (IN NZ), found regulatory worries outweighed more traditional business issues.
According to the survey of more than 90 industry participants, regulation was the top issue in 2016 for about 35 per cent of respondents in a year when the Financial Markets Conduct Act (FMC) regime kicks in with full force.
Just over 20 per cent of those surveyed cited ‘generating returns’ as their major concern for the year while almost 15 per cent ranked the threat of a market shock as the biggest worry in 2016.
Respondents also rated FMC compliance as mainly a burden but with a minority seeing some upside in New Zealand’s regulatory upgrade.
“Over 40% of respondents reported concerns about added costs as a result of the new law (due to take full effect by December 2016), and distracted management from growing business (23%),” the report says.
“The survey also found the FMC has had some positive effects, such as improved processes (16%), raising industry standards, and improved disclosure via greater simplicity and consistency.”
In follow-up industry roundtables held in Wellington and Auckland this month regulation also topped the agenda with some participants citing compliance as a drag on product innovation among other concerns.
However, most of the BNP Paribas roundtable guests said the regulatory disturbance should ease post the FMC December deadline with a return to business-as-usual possible next year.
As the most significant growth engine in the NZ investment markets, KiwiSaver also featured in the roundtable talks with the domination by banks, lack of investor engagement and low financial literacy levels all getting heavy airplay.
The survey echoed similar views about the current state of the KiwiSaver market.
“While KiwiSaver has been an undoubted popular success, survey respondents said the savings regime has also created challenges for the local investment industry,” the report says. “Participants expressed concern about the domination by banks (27%) and local access to advice (20%), coupled with conservative investment choices (19%).”
But while the KiwiSaver industry appears to be in consolidation mode right now a few roundtable participants said the mandated growth in the system would inevitably see new, innovative players entering the market.
As the frontline NZ investment market develops, back-office operations were facing further demands too, the survey found, with reporting the most important focus for almost 60 per cent of respondents.
“The study also found that managers are increasing attention on analytics and reporting; requiring immediacy of access to information and the ability to act on it,” the report says.
“Additionally, managers are looking for more detailed breakdowns of data. As a result, reporting and analytic teams are producing many more ad-hoc, customised reports, with a large number of respondents citing that they still rely on spreadsheets and emails to track and report.”
Doug Cameron, head of BNP Paribas NZ, said the survey provided invaluable insight on where the local industry is right now and where it might be headed.
“Given the rapid pace of change and increasing complexity in the NZ market we wanted to sample industry sentiment across a range of investment and operational factors as well as setting a benchmark for future surveys,” Cameron said. “Investment News NZ was a natural partner to access our target audience.”
The BNP Paribas NZ survey follows similar research projects in other jurisdictions including Australia.
Most of the NZ results – including an increased focus on global equities to boost returns – tracked the recent BNP Australia survey with a couple of notable exceptions: in-house investing by asset owners was a major trend in Australia but almost absent in the NZ results, and; Australian respondents were more likely to increase their focus on environment, social and governance (ESG) issues in the year ahead compared to their NZ counterparts.
The NZ survey attracted 90 respondents split among asset owners (superannuation funds and KiwiSaver providers 12%), asset managers (22%) and financial advisory groups (30%), along with some trustees, banks, insurers and a sovereign wealth fund.
“We were pleased with the large number of responses and subsequent feedback, which shows a real enthusiasm from market participants to engage on key industry topics,” Cameron said.
“We look forward to seeing how the trends develop as the regulatory environment matures. While regulation has unsurprisingly been top-of-mind for an industry deep in transition to the Financial Markets Conduct Act regime, we expect other more business-oriented issues to assume greater importance – such as managing investments in a low-yield environment, risk and data management, as well as the threats and opportunities posed by the ‘fintech’ sector.”