A new Financial Services Council (FSC) report has tipped KiwiSaver schemes were primed to invest more into alternative assets despite technical difficulties.
“KiwiSaver fund managers have also reported that uniform valuation methods are not used for private equity investments leading to differing unit pricing valuation methodologies and liquidity requirements provided challenges to making significant investments in these assets,” the FSC report says.
“However, with greater scale in KiwiSaver and hence larger pools of liquid assets, there may be further investment in alternative investments and international trends support this.”
The FSC report, authored by the NZ Institute of Economic Research (NZIER), echoes sentiments expressed in the NZ Venture Investment Fund annual report published last month berating local institutional investors for ignoring private equity opportunities.
Richard Klipin, FSC chief, said KiwiSaver schemes would inevitably invest more in less liquid assets like private equity and infrastructure as assets under management grew – similar to the Australian superannuation experience.
But Klipin said there was a broader opportunity for the NZ investment industry with the advent of the Asia Region Funds Passport (ARFP) regime kicking off next February.
The ARFP will allow member countries to more easily establish and trade managed funds in each other’s jurisdictions.
“NZ could become a funds hub like Ireland or Luxembourg,” Klipin said. “We have the skills, the IP, and global reputation as a good country to do business – if we can bring them all together there’s no reason why NZ couldn’t drive towards that over the next 10 to 15 years.”
Titled ‘Towards prosperity’, the FSC report says the NZ funds management industry should see further revenue growth over the next five years at least.
“However, as with all industries there are challenges ahead. For example changes to the Financial Advisers Act and the emergence of robo-advice are anticipated to curb industry growth, as competition intensifies in the financial planning segment,” the report says. “There is also a trend of consolidation in the KiwiSaver provider market, as part of a desire to drive scale, which is expected to continue in the future.”
According to Klipin, the robo-advice challenge cuts both ways for incumbent financial advisory firms.
He said financial advisers could be disintermediated by the rising new generation of tech-savvy consumers used to buying everything online.
“That might challenge the status quo for advisers,” Klipin said. “But it’s also an opportunity as the new generation of investors might arrive sooner at a point where they need face-to-face advice.”
He said advisers would have to figure what technology platforms they needed to both address the new market and retain existing clients.
Overall, the FSC report highlighted the growing size and importance of the financial services sector in NZ.
“… the wealth management sector will use this research as a basis to challenge and improve itself, as we work with the Government and Regulators, to continue to foster and grow the industry to ensure it is sustainable and innovative and delivering to all New Zealanders,” the report says.
Klipin said industry players should recognise that ‘culture and conduct’ – as defined in the recent regulatory crackdown on banks and insurers – was “just a ticket to the game”.
Meanwhile, the FSC Navigating Regulation Advice Summits set down for next March have generated huge demand, he said, with over 500 registrations since the offer went live last week.
The FSC regulation roadshow – featuring Ministry of Business, Innovation and Employment and Financial Markets Authority headliners – would tour Auckland, Wellington, Christchurch and, for the first time, Dunedin.
Further detail and registration forms are available here.
Last week the Ministry of Business, Innovation and Employment (MOBIE) also released a proposed fee schedule for advisory businesses operating under the coming Financial Services Legislation Amendment Bill (FSLAB) regime.
The MOBIE initial licensing fee schedule (ex GST) ranges from $575 for a single adviser business to $885 for those that use nominated representatives (NOR) with a $363 transitional licence impost.
Annual levies (ex GST) include $230 per financial advice provider (FAP), $267 for financial advisers, plus $179 per NOR or $1,106 for a FAP that “gives advice on its own account”. MOBIE has also proposed an initial registration fee of $460 per FAP or adviser – plus GST.
If FAPs employ 100 or more NORs an annual levy of $18,130 applies.
Submissions on the fee proposal are due by February 18 next year.
FSLAB, due to be passed early next year, is languishing at 20 on the latest parliamentary order of business.