As New Zealand investors grapple with a still-declining global stock market, is there a need for better financial advice and education in Aotearoa?
It’s never been easier for New Zealanders to invest. And according to research released by the Financial Markets Authority earlier this month, our portfolios have never been more diverse. But with the global financial markets facing a steady, precipitous decline since the start of the year, many New Zealanders are now experiencing for the first time the downside of that more equal market access.
For Joe Taylor, founder and CEO of local financial advice startup BetterSaver, that increase in the accessibility of investment products (as well as the subsequent downturn) has brought into focus a less-discussed issue: ensuring New Zealand investors have the knowledge and the understanding to invest their money wisely. We asked Taylor to explain the role of financial advisers, how a lack of access to good, reliable information has impacted our collective knowledge in the past, and what he’d like to see change moving forward.
The Spinoff: In an era when so many investment products are built and marketed to people as essentially self-serve platforms, what role does a financial adviser play in 2022?
Joe Taylor: Financial literacy in New Zealand is very low. Businesses like Sharesies, InvestNow, Stake and Hatch have done a lot to democratise access to financial markets, and we think that’s been great on many levels. But now there’s so many players trying to push different messages, and so many different ways to invest. It’s completely overwhelming. And when we feel overwhelmed, we can’t always make the best decisions. An expert adviser isn’t going to make decisions for you, but they will make recommendations for you based on your situation and what you want to achieve.
At the moment, BetterSaver only offers advice for KiwiSaver. But in that market alone, you’re looking at over 240 different funds from over 30 different providers. And every one of those providers is going to tell you that they’re the best. If you go to a bank and you ask for KiwiSaver advice, they’re only going to talk about their own product, even though their growth fund might be the worst performing in the market. I sometimes term the role of financial adviser as like a copilot: the pilot is still in control, but we’re there to make sure you’ve got the right information to be able to fly the plane and get where you’re going in one piece.
Do you think that the way the market has become more accessible has contributed to people feeling like they don’t need financial advice?
There’s definitely an element of that, but it’s also that there are so many more people in the market and a lot of them have just never been exposed to what a financial adviser does, or the value of it. And that’s because in the past a financial adviser would only sit down with you if you already had a lot of money ready to invest. But things are different now – 64% of New Zealanders have KiwiSaver, and more of us than ever are investing in stocks or in managed funds – so the need is much greater.
Good financial advice isn’t just about making the right decision today, it’s about your whole journey. In 10 years time you might want to buy a home, or you might want to go on a holiday, you might even want to retire. Looking at KiwiSaver, with the cost of living being what it is right now, people focus on contribution rates and think, “I can’t do anything with it now, because I can barely make ends meet.” But it’s not all about how much you’re putting in there – you could be contributing 3%, but if you take the time to get into the right fund for your situation, you could still be a long way better off in retirement.
With the volatility in the market at the moment, do you think less-experienced investors are more likely to get freaked out by what their investments are doing than people who’ve had access to better information?
That’s definitely what we’ve seen in the past. When KiwiSaver funds dropped in 2020, a lot of people jumped out of their growth funds into conservative ones, not realising that they were locking in their losses. But there’s been data from the FMA now which suggests that hasn’t happened as much with this more recent volatility in markets. Maybe that’s because people are becoming more financially literate, but I think there’s definitely still room for better knowledge and education.
Because again, financial literacy in New Zealand isn’t where it needs to be. And education is one part of that; advice is another. But ultimately, what we’re trying to do with BetterSaver is empower our clients. At the moment, if we were to try and talk to our customers in the same way that we talk to some of the fund managers that we deal with, they’d be paralyzed by the information, because they mostly don’t have the ability to understand or respond to it. So over time, we see a big part of the challenge as lifting that base knowledge so that we can talk to them on a deeper level.
We’ve also seen, with the markets as volatile as they have been in 2022, the general public are taking more notice of their investments. A lot of that is because people have seen a sharp decline, but despite the tough times it’s still good to see people taking notice, and taking action. We don’t pay much as much attention to our KiwiSaver accounts when markets are more stable, but we really should – having your investments in the right place during the good times could mean tens of thousands of dollars extra for your retirement or first home.
Is trustworthy advice as accessible as it should be?
Financial advice is – justifiably – a heavily regulated industry, and up until around 18 months ago one of the main barriers to access was that you couldn’t offer financial advice via a digital platform. Which obviously meant that access was skewed heavily towards those higher-net-worth clients. BetterSaver operates what I term a hybrid model: it’s digitally led from our website, but we’ve got human advisers and experts behind that, having actual conversations. Having those human interactions, and getting that data is really important for us, because then we can build better processes and systems to help more people and scale it up, but having the freedom to operate digitally really does just increase the scalability of what we’re trying to do.
Is there anything more structural that you’d still like to see? How do we take what we’re learning from this moment and make our financial sector better and fairer long term?
I think the most obvious thing is that we need better financial education in schools. It’s not going to solve all of the issues with our financial system, but increasing that baseline understanding would make a huge difference. We want people to know that they have options; that actually there’s more to life than investing in houses and working a nine-to-five job for forty years. And I think if we did have a better, deeper approach to education around this stuff, we’d all benefit from that.
We as New Zealanders also need to get over our discomfort around talking about money. It shouldn’t be a taboo. The inability to have open conversations about our finances stops us from knowledge-sharing and lifting each other up. Because you don’t know what you don’t know – and in finance, there’s a lot to know. But there are experts out there who can help you, and it’s a lot easier to speak to people than it was in the past. Talking to a financial adviser doesn’t mean giving up control; we’re not going to make decisions on your behalf. We’re only going to make recommendations, and you’re the one that gets to choose what happens next. We just want people to know that they don’t have to do it all by themselves.