Almost six months after filing docs on its beta-grade KiwiSaver scheme, Sharesies has opened the folder on the real deal with the first multi-rate PIE self-select equities offering in the market.
As widely expected, phase two of the new KiwiSaver scheme launch taps into the Sharesies share-trading game that has attracted some 500,000 players since going live in 2017.
Under the self-select option, Sharesies KiwiSaver members will be able to channel up to half of their contributions to direct listed equities (including exchange-traded funds), starting with the NZX but eventually expanding to Australian and US markets: the remaining 50 per cent of contributions must be allocated to any of the diversified funds in the Sharesies catalogue run by Pie Funds, Pathfinder or Smartshares.
While two other KiwiSaver funds – the Craigs Select and Consilium KiwiWRAP schemes – already offer members the ability to invest in direct equities, the Sharesies structure is unique.
Both Craigs and KiwiWRAP have resolved the administration challenges of managing individual shares in KiwiSaver by containing their respective schemes in superannuation trust structures, which apply a flat 28 per cent tax rate on member investment returns.
The super structure renders the two schemes inefficient for KiwiSaver members on the lower prescribed investor rates of 10.5 per cent and 17.5 per cent – arguably more of a target market for Sharesies than the higher-end clients courted by Craigs and Consilium.
However, Sharesies has tacked on a multi-rate portfolio investment entity (PIE) engine with different admin nuts and bolts, according to Matt Macpherson, who heads the firm’s KiwiSaver division.
Macpherson said Sharesies has created about 500 underlying single-asset PIEs that represent the direct share (and ETF) KiwiSaver menu: members own a fraction of the share PIE rather than the actual securities.
“We had to develop the PIEs ourselves because they didn’t exist already,” he said. “But it’s not terribly complicated to do.”
If building the technical sub-structure was a relative breeze, however, setting appropriate risk parameters has likely consumed more energy.
Ever since the inception of the regime in 2007, the regulator has been loathe to open up KiwiSaver to open-slather speculation on direct securities, preferring schemes to outsource most of the risk-taking to professional fund managers.
Craigs and KiwiWRAP hosed down those concerns by limiting scheme entry to professionally advised clients. Sharesies, as per its democratising ethos, is open to all with only the pre-installed “guardrails” of contribution limits (a 50/50 fund-to-stock maximum ratio and a top portfolio allocation of 5 per cent for any one share).
Macpherson said Sharesies also provides a risk-score on member investment plans (along the lines of the 1-7 mandatory risk scale used by licensed managed funds) based on a “performance variance calculation” with “quite a lot of maths” behind it.
“Members will see that before they actually make the investments,” he said, with quarterly performance and annual reports supplied in the regular fashion.
But the Sharesies scheme won’t automatically rebalance member portfolios to maintain asset allocation limits, potentially allowing risk bubbles to form.
If single share holdings do increase “well beyond the guardrails we can suspend contributions”, Macpherson said – although he puts a low chance on that occurring.
Neither Craigs nor KiwiWRAP automatically rebalance either but it would be part of any advice process.
Regardless, the Sharesies KiwiSaver direct equities risk model has finally been approved by the regulator, which has delayed release of the part two scheme details until now (the friends-and-family live version only includes the diversified funds).
As well as the diversified fund fees (which are mostly a little above the underlying versions offered by the managers elsewhere), Sharesies KiwiSaver members will cop other fees on the self-select component including a 1 per cent fee on transactions under $1,000 and a 0.15 per cent administration. The scheme has a 0.1 per cent fee on transactions over $1,000 aimed at reducing costs for transfers and internal investment switches. Effectively, all regular contributions will incur the 1 per cent transaction fee.
Macpherson said about 19,000 people have expressed interest in joining the Sharesies KiwiSaver scheme to date with a final launch still some months away.
Craigs, which pioneered the KiwiSaver self-select model in 2007, reported about 7,000 members and $480 million under management in its scheme at the end of March last year.