Australian fund managers are queuing up to enjoy the NZ experience. Clayton Coplestone, Heathcote Investment Partners founder, offers on-boarding advice…
Just a three-hour flight away with a good tailwind, NZ has long been a tempting destination for Australia-domiciled fund managers.
We speak almost the same language, share strong historical and cultural links while offering an almost frictionless fund set-up procedure since the introduction of the trans-Tasman Mutual Recognition Regime (TTMR) in 1997.
Australian managers with a decent medium-term memory also see NZ as a mini-me version of their own industry as it was some 30 years ago – on the cusp of explosive growth.
There are undeniable similarities between the Australian financial services scene of the mid-1990s to early 2000s and its NZ counterpart today: a newish legal environment; a recently established regulator; a reformulated financial advice sector; and, a budding savings culture underpinned by the semi-mandatory KiwiSaver.
But that’s where the comparison falters.
Fly-in Australian fundies landing in NZ are invariably surprised by the heavily fragmented retail advice industry, the small – if highly sophisticated – institutional population and the disparate wholesale community.
Back-of-the-envelope estimates suggest the current NZ opportunity set for asset managers is perhaps $300 billion (excluding government-owned funds) – plus almost $250 billion of household money sitting in cash or term deposits that could flee to riskier assets should interest rates fall sufficiently.
While comprehensive distribution data remains elusive, the retail investment advisory space is dominated by a handful of financial advice providers (FAPs) of broker origin.
The largest investment-focused FAPs include:
- Forsyth Barr (276 advisers, $27 billion funds under advice);
- Craigs (180 advisers, $30 billion funds under advice);
- FirstCape (113 advisers, $29 billion funds under advice); and,
- JMI Wealth (20 advisers, $4 billion funds under advice).
Post the introduction of the Financial Services Legislation Amendment Act (FSLAA), which came into force in 2021, we now have a clearer picture of the local advisory sector.
According to the latest official figures, the Financial Markets Authority (FMA) oversees 1,476 FAPs and 1,045 subservient ‘authorised bodies’.
Circa 70 per cent of the 1,476 FAP licences are primarily insurance providers with 82 per cent of the 10,736 financial advisers operating within entities of fewer than 10 advisers.
A general trend under this relatively new regime has created a bar-belled advisory universe with larger FAPs overseeing predominately insurance and mortgage specialists and the vast majority of investment advisers operating inside smaller, fragmented entities.
The smaller advice providers share an additional $35 billion of funds under management with a further $100 billion or so held in private wealth entities such as high net worth investors, self-directed investors and family offices.
Australian firms looking to tap into the various retail channels have to negotiate the peculiarities of the NZ system, too, such as discretionary investment management service (DIMS) structures, platforms and other gatekeepers such as researchers – all of which exist across the Tasman but in much different configurations.
Meanwhile, the wholesale silo comprises community trusts, not-for-profits, fund of funds, and iwi. Many wholesale investors seek guidance from asset consultants (both locally and abroad) but sophistication levels vary considerably and there is no single formula for offshore managers looking to engage with the fractured sector.
The wholesale not-for-profit sector has roughly $60 billion in funds under management with an additional $10 billion in non-direct iwi assets.
NZ has few, true global-scale institutional asset owners but most Australian managers aspiring to the market have made the well-trodden round through the government-owned entities – notably, the $70 billion plus NZ Superannuation Fund and the almost $50 billion Accident Compensation Corporation fund – in a journey typically tied-in with visits to potential wholesale and retail advisory clients.
Now topping $110 billion under management, the KiwiSaver market is certainly the main prize for Australian fund managers who have seen their own superannuation pool swell to almost A$4 trillion.
Despite a locked-in growth trajectory, though, Australia-domiciled managers don’t gain automatic entry to KiwiSaver via TTMR credentials: schemes – and, in fact, most NZ investors – expect underlying funds to build for local conditions as portfolio investment entities (PIEs).
Contrary to popular belief, NZ is not the seventh state of Australia with a no-worries access for asset managers.
Plenty of foreign managers have failed to gain meaningful traction despite frequent visits and – more recently – promises of support in exchange for domestic product structures.
Before booking NZ flights, Australian, or indeed other foreign, managers must first ensure there is enough demand for the investment capability in question: everything else – including target market, product wrapper and distribution strategy – will follow in the slipstream.