Think you’ve got your KiwiSaver sorted? Try Kōura’s ‘robo-advice’ questionnaire and you might be surprised.
If a person who looks like they know about finance asks you whether your appetite for risk is low, medium or high, what do you say? The problem is most Kiwis don’t understand what the question means, or the consequences the answer has for their savings, says Rupert Carlyon, co-founder of new KiwiSaver scheme Kōura.
“When it comes to investing people don’t understand the definition of high, medium and low risk. To them ‘high risk’ means ‘would I be willing to lose all my money?’”
KiwiSaver providers are not having the right conversations with their clients to make sure they are aware of the decisions they need to make for their retirement, he says. As a result, New Zealanders are missing out on crucial savings.
Kōura has done research which shows that more than half of KiwiSavers are in a fund that is not the right type them. This includes the 20% of people who are languishing in low-return default funds. It’s now been 12 years since KiwiSaver launched and the industry is not working quite as it should, Carlyon says.
“It really astounds me that we have been talking about this problem now for the past five years yet we have not done anything to address the problem. I think the industry is too busy talking about how great KiwiSaver is as a result of the significant take-up, yet have not stopped to think is the product working as well as it should.”
Kōura surveyed one thousand people to assess their risk appetite and savings objectives. They discovered that not only were half in the wrong fund, but only 53% of those under 45 were in a growth fund. It also found the majority of those not in a growth fund wanted to prioritise the growth of their assets over volatility – a clear indicator of a high-risk tolerance.
Those people are foregoing the opportunity to earn better returns from higher-risk funds while they still have plenty of working years ahead of them to absorb the inevitable ups and downs of financial markets, Carlyon says.
“Realistically all of those people should be in a growth fund. There are 1.8 million people under 45 in KiwiSaver who have $38 billion invested collectively. Our rough estimate is that just being in the wrong set of funds has cost that group about $2.5 billion over the last couple of years.”
Kōura is a next-generation KiwiSaver plan that is addressing this advice gap with its easy-to-use digital advice platform – known to those in the trade as “robo-advice”. Two years ago industry regulator the Financial Markets Authority changed the rules to allow personalised robo-advice, and has since issued several licences. But Carlyon doesn’t think anyone else in the industry has got it right yet.
“When I look at some of the tools that currently exist around retirement planning, it’s too complicated. The everyday person wants to be able to sit there without thinking too hard and get to the answer in a few minutes from the comfort of their couch.
“They don’t want to have to play around with 16 different buttons and inputs to try and figure out where and how they do stuff.”
Kōura’s research has allowed them to simplify the risk categorisation process to three short and simple questions. They also consider more than just risk appetite when designing a portfolio. They learn about an investor’s greater financial objectives: are they using their KiwiSaver just for retirement, or is it part of their tactics to buy a first home. Then they ask how important KiwiSaver is to those objectives.
This is where Kōura’s understanding of what questions need to be asked is essential. International research on robo-advice shows that in order to properly identify how much risk an investor is willing to tolerate you need to ask the same thing several times in slightly different ways, he says. Thus Kōura’s online tool asks people a set of questions about how they would react to a fall in the markets, rather than “what’s your risk appetite?”
“If you ask them the same thing slightly differently and it comes up with different answers you know to score them a lower risk profile.
“If they answer consistently in a certain way, then it’s pretty clear where you get to.”
This conversation has never been had with KiwiSavers, he says. Asked about risk straight out many would say they’re not high risk, and that means they won’t end up in a growth fund when they potentially should.
Once Kōura has the information it creates a portfolio for the individual person out of its six separate funds. One of the constraints on other KiwiSaver providers is that they have rigid “conservative, balanced and growth” fund structures so it’s harder for them to personalise schemes for people.
“What we are most proud of is that we’re giving people real advice to explain why we recommend a specific portfolio and giving them information on the implications of that recommendation so they can make an informed decision.
“We’re telling them how it’s going to change over time, because fundamentally KiwiSaver is not a set and forget product, as much as everyone would like to think it is. We do need them to change and de-risk as they get older.”
The feature of the Kōura advice model that has got people more interested than anything else is the “what will my weekly income be when I’m 65” figure – “because that is the most relevant number of all,” Carlyon says.
Kōura has been set up by Carlyon and Hobson Wealth, a private wealth advisory firm managed by KiwiSaver veteran Warren Couillault. Kōura is Couillault’s third KiwiSaver scheme, having previously established the Fisher Funds and Generate schemes.
Carlyon spent 10 years working in investment banking with UBS in Auckland and London, before working in a variety of other roles at Vector, Tower and KPMG and figuring out that personal finance was where he wanted to be.
His career has been built on giving people good advice, he says.
“This is aimed at a slightly different crowd, but it’s the same. Advice is not about telling people what to do, it’s about giving people information and allowing them to be confident to make their own decisions. I hope that our tools give people the information and advice they need to allow them to make the right decision.
“We give people advice. I think we’re actually competing against the financial advisers rather than competing against the other KiwiSaver providers.”
This content was created in paid partnership with Kōura. Learn more about our partnerships here.