Having surpassed $62billion as of December 2020, total KiwiSaver funds under management (FUM) continues to grow, albeit more slowly than in previous years thanks to Covid-19. Member numbers now sit at 65.2% of the total population, making it the biggest investment platform in New Zealand. Despite being in the midst of a global pandemic, member contributions increased by 15.5% over the previous year, with combined fee revenue increasing 12.3%, highlighting the strength of the regular contribution model in growing total FUM and revenue.
These numbers are spurring increased competition, and we’ve seen an increase in marketing activity and new KiwiSaver providers coming to the market over the last year. While the KiwiSaver model may have initially started at a slow pace, financial service providers are now seeing the value in trying to capture this segment, and are ramping up their strategies to not only attract but retain KiwiSaver members over the long term.
With a current average management fee of $150 per member, a big concern for KiwiSaver providers is this: how do they streamline their service models to efficiently service this large, relatively low fee-paying customer base, while still providing a great customer experience to retain investors, and benefit from the FUM and fees increase each year?
A digital service offering will lower administrative costs
A streamlined online experience is not only the key to unlocking administrative efficiencies, but critically, will also enable KiwiSaver providers to put in place the necessary tools and functionality to attract and retain KiwiSaver investors over the long term.
Basic online functionality such as digital onboarding, electronic AML, and investor self-service tools that enable customers to select and invest into a KiwiSaver fund, switch between funds, and update their profile details should be considered as a core requirement in today’s business landscape. Automating these functions and placing these KiwiSaver tools in the hands of the investor is one of the biggest contributors that we have seen to reduce administration time and associated costs.
Millennials and baby boomers alike want better technology
37% of all KiwiSaver members are in the 18 – 35-year-old age bracket, and make up the biggest group of KiwiSaver investors. By 2025, Millennials will make up 75% of the workforce. It’s only logical then, that when considering how to attract and retain KiwiSaver members, providers must consider the needs of the millennial investor.
In our recent article, “What Millennials want: wealth management for the digital generation”, we discussed the key elements that Millennials are looking for from their investment experience. To summarize this in a nutshell: education, information, and better accessibility are important, a whopping 86% of Millennial investors are interested in sustainable investing, better visibility over money and investments will encourage them to invest more, and 60% want a self-directed investor portal and that is mobile compatible as a standard offering from their wealth providers.
Specific KiwiSaver tools and a well mapped digital client experience can unlock the majority of these requirements from Millennial investors. But it’s not just Millennials who place an importance on technology: 85% of HNWI’s demand more digital interaction in three key areas: accessing their portfolio information, executing transactions, and getting advice or service from wealth managers, and according to Betterment, a leading U.S. robo-adviser, over a third of their clients are over the age of 50.
Digital KiwiSaver tools for added value and long term retention
A KiwiSaver investor portal can cover the core online administrative tasks such as digital onboarding, and self-service tools, but it can also deliver an enhanced digital engagement experience that can meet the needs of both millennial and baby boomer investors, enabling providers to add value and retain their members over the long term.
Investment information, education, and portfolio details can easily be provided through a portal. But rather than simply displaying the static and often lengthy PDF type information that has been standard practise since the inception of KiwiSaver, an interactive and engaging portal can help bring this information to life in a timely and value-added manner.
A great example of how this could be applied to the benefit of a large number of KiwiSaver members, was during the share market volatility as Covid hit in 2020. Market volatility resulted in many providers experiencing a sharp increase in enquiries from members querying the drop in their balances. There was also a notable increase in switching funds, as investors were uncertain of how to respond to these market changes, with the FMA reporting a 54% increase in switching most notably from growth or balanced funds into conservative and cash investments.
It’s great that investors now have some of the self-service tools such as the ability to switch funds online, however there now needs to be a greater push towards education and information to help investors understand, track, and achieve their long term investment goals. This can be achieved with tools built into an investor portal such as chat functions (either live with team members or chatbots), pop up informational type buttons and alerts that vary depending on what action the investor is taking, and auto-prompts to steer investors to a particular course of action.
These KiwiSaver tools can add immense value to investors at any point along their investment journey, but really stand out and come to the fore in times of market volatility. Not only can they help educate investors and potentially reduce adverse panic investor behaviour, but the automation can also go a long way to reduce the volume of calls and enquiries through to customer service teams. Such value adds can be quantified and displayed within the investor portal, ensuring clients are aware of the value they are getting from their provider and building loyalty.
Seamless advice and robo-advice processes key to driving better outcomes
The low average fee per member has typically meant that providing advice on KiwiSaver has not been feasible for providers in the past. The imminent changes to financial adviser legislation opens the door for robo-advice. This provides a great opportunity for KiwiSaver providers to add another level of value to their customers and is another strategy to help with long term client retention. Data from the FSC shows that KiwiSaver members who receive professional advice achieve 4% better returns on average, adding up to a significantly larger account balance at retirement.
Many KiwiSaver investors do not seek help, with over 60% of unadvised respondents indicating that they didn’t think that they had enough assets and wealth to need professional financial advice, and think that it is unaffordable. This is where robo-advice can be a game-changer for KiwiSaver. By embedding robo-advice processes into the overall digital client experience, investors will not need to actively seek advice per say, but will nevertheless be able to benefit from advice and guidance throughout their investment journey. For providers who offer advice via the traditional method (ie – human advisers), this touch point can also be integrated into the digital process. This enables a seamless handover to a financial adviser when the member needs it, or when their KiwiSaver account balance is large enough to justify the higher cost of advice from a human adviser.
KiwiSaver has come a long way over the last 14 or so years since it started, and there is no doubt that the overall New Zealand population is better off because of it. It’s now time for providers to lift their game, and embrace the digital tools and functionality that investors across generations are demanding. This will not only lead to lower administration costs, but has the ability to significantly improve outcomes and engagement for customers, which will ultimately lead to better client retention, and the associated FUM and revenue growth.