Watch Recording
Transcript
Global Wealth Report
Jeremy Graham 0:58 Kia Ora everyone. Thank you for attending the inaugural FNZ Future of Wealth in New Zealand webinar which I'm extremely proud to be hosting. I'm Jeremy Graham, Managing Director of FNZ in New Zealand and I'm joined today by an excellent panel of experts from across the wealth industry who will be discussing and hopefully debating some key topics that are very relevant to our industry and it's continual evolution. There will be time at the end for real time questions that you can submit by the Q&A function and team. Please note we'll be sharing a link to the slides in a recording post the webinar conclusion.
You should have all received a full copy of the Global Wealth report when you registered for our webinar. FNZ operates across all key wealth segments and 30 plus countries and manages over 3 trillion New Zealand dollars of assets for more than 25,000,000 end investors, through over 100,000 financial advisors, this gives us unique insights into industry trends, investor behaviour and how technology can be used to help open up wealth by giving larger numbers of investors and potential investors access to financial advice and information.
This major new global analysis from the research coalition, comprised of ThoughtLab, Deloitte and FNZ, includes views of 250 wealth management firms and 2000 investors. It shows that by 2028 the investment industry will look very different with digital innovation and artificial intelligence (AI) being essential ingredients for future success. Whilst the findings should not be overly surprising, they do indicate that the industry is evolving quickly and investor expectations are getting higher. Status quo and stagnation will not be an option for providers wanting to remain relevant and avoid atrophying.
Five key themes were uncovered in the report.
It's clear that investors today are expecting more from their digital experiences. They want intuitive, seamless tech enabled interactions. But what's just as clear is that they don't want to lose the human touch in the process. This is still a people in industry, at the heart of every decision to invest or seek advice is trust. Trust in a person, a platform or a brand, and can't fully be replaced by technology.
The next finding is that capturing the younger generation is critical to business sustainability. Capturing the next generation of investors isn't just a growth opportunity, it's essential for long term business sustainability. As wealth begins to shift from one generation to the next, those who aren't building trust and relevance with younger investors risk being left behind. If we can connect with this emerging cohort in meaningful ways, we don't just preserve business, we help shape the future of wealth itself.
AI and digital innovation will provide personalization at scale and drive performance of the industry at large. There will also be a need to support the increasing governance and compliance requirements of providing advice to investors.
In a shifting landscape, we need to recognise that new products and services are going to be essential to investors, especially younger ones, are looking beyond traditional performance metrics. Non financial factors like ESG scores and sustainability impact are becoming increasingly influential. We are already seeing stronger signals that these considerations will play a bigger role in future decision making. It's not just about financial returns anymore, it's about values, transparency and long term impact.
Finally, providers will need to remain aligned to investor needs and thinking ahead to future investor trends in order to remain relevant. Technology will play an increasingly important role.
Advisor Ecosystem
Without further ado, I'm pleased to announce our panel for today. I'll start by asking our panel to introduce themselves and share thoughts on how we can improve the scale and reach of the advisor ecosystem in New Zealand. I'm going hand over to Ben for initial thoughts.
Ben Brinkerhoff 6:19 Hi everyone. My name is Ben Brinkerhoff and I am the Head of Advice at Consilium. Consilium works with about 150 to 200 different advisory firms across New Zealand, generally working with higher net worth clients, but clients of all types and shapes of course, from Kiwisaver to multimillionaires. My job is to help them grasp and utilise great ideas and to improve the businesses and grow and develop the kind of businesses they aspire to develop.
And I guess one of the first questions here is improving the scale and reach of the advisor ecosystem. It's interesting because as we're considering this question, we sort of mould around what is the question really getting at and and how do you improve the scale and reach. Listen, in order to improved scale you've got to provide technology. And as I was thinking about this question deeply, the question that keeps on coming back that I hear from advisors is that they need to better use data which is held in disparate systems that don't talk to each other.
If you want to create scale for the kind of people that I work with, then the data that they hold in different data lakes need to be able to communicate to one another to solve problems. And so it's that interconnectivity of data that is essentially holding people back. With that in place, advisors will then focus on the types of types of clients that they're best and most suitably able to serve, which are going to be different. And we want a very diverse group of advisors dealing with a very diverse group of needs. But what they have all in common is that the information that they hold in different places need to speak to one another in order to solve problems.
Jeremy Graham 8:25 Excellent insights. Thanks Ben. Anna, your thoughts?
Anna Livesey 8:38 I look after the customer experience and design function at ANZ Bank including our funds management and wealth management parts of the bank. So I think when I look at this question, we obviously have a private bank and we serve people with specific and dedicated advice for people with more complex financial lives. I think about we serve 1/3 New Zealanders and for those people their lives, financial lives can be, in a sense, quite simple. If they're lucky they have got a mortgage that they are working towards paying off, and hopefully they've all signed up for Kiwisaver and are getting the benefits of it.
But the advice that they need can actually be really simple. It's just about optimising how they pay their mortgage off and getting themselves into the right fund for their Kiwisaver. I think is that actually for a lot of people, it's very simple. There are some really simple steps they can take. We can use digital tools that are quite generic I guess to do that, because if it's just a case of selecting the best Kiwisaver fund for you and understanding what the trade-offs are between a more riskier one vs. least risky one. If we can just get people to do that, that's a really substantial improvement for them and is a great way of helping ordinary Kiwis build their financial security over time.
Jeremy Graham 10:12 Thanks Anna. Kylie.
Kylie Bryant 10:15 Good morning, everyone. My name is Kylie Bryant. I'm a Partner at Deloitte in Auckland. I've been with the business for about 2 1/2 years and prior to that I had a long career in financial services, working across wealth, insurance and banking, and also ran a technology company for various solutions. I'll just touch on improving the scale and reach. We work at an industry level and work with a number of our clients across the industry. To continuously improve scale and reach, we look at intelligent automation, digital, technology and data as enablers and that's where we really see the advantage of scale and reach.
Jeremy Graham 11:02 Great, thanks. It's great to give your view across multiple aspects of the financial industry as well. Thanks Kylie. Finally, Ryan, your thoughts.
Ryan Wilson 11:12 Ryan Wilson here, General Manager of Wealth and Insurance Partnerships for BNZ. I'm responsible for the wealth propositions ranging from Kiwisaver, up to a high net worth solutions through the private bank, and part of my remit is also the design of the advice processes that support those propositions.
Throughout my 20 years in the industry, I've seen the evolution of the advice processes and I think already that processes to enable scaling investment and digital and tech is well underway. I don't think we necessarily have to do anything different. The market is driving that way anyway, and I think the two drivers there are the the increase in the size of Kiwisaver average balances, which creates a different economic opportunity, and also the reduction in cost of the technology that it takes to scale.
Jeremy Graham 12:14 Fantastic. Thanks, Ryan. We certainly see similar trends in New Zealand in the space compared with other similar countries. We operate in the UK, Australia and North America. So we're not alone here in trying to solve some of these scale problems.
Global Trade Crisis
Look, we'll move on to question two. This is a very relevant topic to almost everybody who's dialled into this webinar. So with the ongoing crisis around global trade, what recommendations would you make to advisors and investors? I'd like to initially hear Anna's thoughts.
Anna Livesey 12:57 I focus on that mass market of people who are have relatively simple financial lives and we really have three pieces of generic advice or the things that we want people to get right when they're thinking about their Kiwisaver and which Kiwisaver investment which is the right fund, right contribution, don't panic. This is a real don't panic moment but one of the things that we try and do is ,as people are going through selecting their fund, we've tried to work out a way to give them a sense ahead of time that if they're in a more volatile fund, it will go up and down, so that's part of the visuals that they see as they go through selecting a fund and through our digital tools and selecting a fund.
What we hope from that and what our research and customer testing shows us is that this means people are more likely to not panic through this moment of volatility. Just sit tight and if you are worried, of course ring your provider for some reassurance and a conversation.
We've seen a few media stories where people have had their first home deposit suddenly shrink on them. And what that says to me is that the investment time horizon was very short. They were expecting to use that money very soon and they had it in a non cash or a volatile fund and that speaks to me as probably a failure of the provider or the advice they have been getting.
We've got a real obligation when we know that people are very close to using their money to help them be in a safe space. But the the general advice is literally just don't look for most people, that's certainly what I do with my own account.
Jeremy Graham 15:01 Don't panic. I love it. Ben.
Ben Brinkerhoff 15:05 Well, I'll admit I've looked. I'll admit it. I've looked. I've looked at my accounts and I think most of us will admit that that probably is true. You can't help it. Really. I work with advisors and I don't have to work in that mass market space. So we can give a little bit more focused coaching. And I think if you're paying for advice, you better be getting that coaching. And what I try to help advisors to do is completely reframe the question because we know that market volatility is inevitable and that's not that hard to convey people. People generally know that.
Then you think about well, what if someone's contributing Kiwisaver? Well if they're contributing Kiwisaver, this kind of volatility is a win because they're buying at lower prices. They're still making their regular contribution, which is the same amount probably, but they're buying relatively more shares this month than they were buying three months ago. I try to tell people no one goes to Briscoes and says, oh, darn, there's a sale. Right. Why? Whether you're buying socks or stocks, if something's on sale, you're generally happy.
If you're neither buying or selling there is still an opportunity because most bond funds are up and you get to sell some of those bond funds and buy back some equities at a lower prices. That's called rebalancing and that's something an advisor should be doing with clients as appropriate. But what if you're selling then market volatility? As Anna mentioned, that's a problem because you need that money. This is why you should be having cash and bonds in your portfolio because now's the time to use them. And don't be afraid to use them. In fact, use them exclusively. Don't leave your shares alone and be living off those bonds. If there is no down markets, then why in the world would you have defensive assets? You only have them for these types of markets. So you should be prepared for that kind of situation and then use your entire portfolio. That's why you have different things.
Advisors can sit down with clients and show that they're still on track to achieve what they want. So the things that they value and want are not at risk. And if in fact market volatility is meant that those things that they value are maybe not on track, then there are things you can do to get them back on track and you can talk about about those choices, none of them, by the way, involve panicking out of markets because that's just going to make your goals all that much more difficult to achieve.
So I think my advice to advisors is reframing this so they see it not as a problem. Maybe they see it even as an opportunity or as something they're already prepared for. And I think that creates comfort because when you panic, you think that you're going to lose something. You don't feel like you have a plan. You don't feel like you have a strategy. And if you're working with an advisory, you should have all those things, or else, frankly, you're with the wrong advisor.
Jeremy Graham 18:21 Thanks, Ben. Ryan, you must have some very relevant recent experience.
Ryan Wilson 18:27 What I do see is that at moments like this that advisors can really shine and particularly those whose proposition is based on a holistic and deep relationship model with their clients. It's a moment of truth for that type of proposition. I think that advisors adding value to their clients in times like this is as much about that the coaching point that was talked about earlier and managing through the behavioural economics as much as it is managing the short term market exposures.
Timing the market is difficult. Keep an eye on what your goals are. Make sure you're following the right strategy for you and if you are just stay the course you know markets are doing what they do and and while we can't predict when they will turn, we know that at some point they will. And so in that context actually, I encourage people to look at how their balance changes on a on a relatively regular basis. I think it's important that our customer base gets to know and understand how these investments work and what the market's doing and how it flows through to the value. I think that from what I've seen over at various market cycles, those investors that get the most anxiety are those who perhaps don't understand what's happening as much as others do.
Jeremy Graham 19:57 Finally, Kylie, your thoughts?
Kylie Bryant 20:00 And so we're terming this phase as Trump 2.0 at Deloitte. There's high levels of uncertainty that it's erratic out there and the outlook is shifting not only by the day, but sometimes even by the hour, which makes it a little bit challenging. I do look at my saver balance on the daily just to understand what's going on. But you know, just to reiterate what has already been said, it's a long term game. Stick to the game plan. It's absolutely been proven over time and just really stay the course.
Younger Generation
Jeremy Graham 20:37 Thanks very much, Kylie. We'll move on to question 3. And as quoted in the the Global Wealth Report that hopefully you've all received, the next 10 to 20 years is going to be around $15 trillion U.S. dollars of wealth transferring to the next generation. So it'll be really good to hear the panel's thoughts and give us some examples of how New Zealand advisors should be engaging the younger generation better and improving financial literacy. I'm gonna pass back to Kylie for the first response.
Kylie Bryant 21:14 Just building on the research, it tells us that Gen Z investors expect investment firms and advisers to to meet them where they're at, which is absolutely in the digital space. We've heard that the younger investors don't prefer advisers because they feel like technology provides them with enough information and they also have different expectations on what sort of fees they pay when they are seeking advice.
So what we're seeing is that Gen Z prefer a digital layer and are really looking at a cost that works for them. We're seeing investment advisors in firms moving more to Robo bias targeting this Gen Z population. We're also seeing in New Zealand an example of this is as the uptake on the platforms. So this is really meeting clients where they're at and at a cost point that is relevant for them. We've seen disruption in the market because of that. So what we're seeing is innovation coming to the market and I know more globally that's happened already. But you know New Zealand, we are running more behind on a global perspective.
Jeremy Graham 22:36 Absolutely, Ryan?
Ryan Wilson 22:40 I agree. The younger generation, they're not sitting back. They're getting out there and they're learning through doing and they're accessing different platforms to do that. And it's often self-directed, but with a range of different influences helping to guide their choices, mainly through digital channels. But I think for advisors, that's an important opportunity to get out and meet this group where they are. And structure processes so that you can engage them in ways that the customer group wants to be engaged.
It's striking the right balance between helping them understand and interpret the other influences they're exposed to, and interpreting what they're experiencing as they test and learn. The other point I'd make for the younger generation is I think that these are growing since that model of wealth management or wealth creation through home ownership is is increasing unattainable. And I think actually as an industry that's something that we need to lean into a little bit more.
Jeremy Graham 23:57 Absolutely. I'm going to pass over to Anna.
Anna Livesey 24:20 I think that what we need to be thinking about, again for the mass market, is that we actually incorporate the pieces of advice or the nudges, the ways that we help people set themselves up into the experience that they're having with us as a bank in particular. So when people come to us and they open their first account, they're going on a whole journey about starting a job and how to manage money. And then part of that journey is how do you start to invest, how do you start to work towards home ownership if there is a goal for you, how do you understand what's possible in your future?
One of the things that I really hold as an inspiration, not just for ANZ but for the banking system in New Zealand is in general is that we make that accessible, natural and just part of people's lives. One of the things that I like to say is that nobody comes asking for homework. Nobody wants to be given a whole lot of information that they have to read and absorb or be felt like they're being, you know, taught about that they are not interested in. What they want is for us as the experts to support them, to make the best choices. I think that's a real way of connecting and with young people.
And obviously the technology is really, really important there. But so is the understanding of the behavioural science and the needs behind it. And so is the design and the customer experience. That means that what you actually create and deliver really works for the people that you're trying to help or trying to reach.
Jeremy Graham 26:06 That's an excellent point. The information is the same, but the way that it's conveyed and digested by that generation is completely different.
Anna Livesey 26:17 There's no information vacuum, right? There's no shortage of information. The problem is often about time, confidence and so you know as a provider of financial services, I think we've all got an obligation to really take away that and help people just make those simple decisions that set them up for success.
Jeremy Graham 26:48 Absolutely. Thanks. Ben?
Ben Brinkerhoff 26:56 I'll be short here. I'm a bit of contrarian on this. I don't tell advisors they should engage with the younger generation. I tell advisors they should solve certain problems with excellence and make yourself available to people that have those problems. And those problems can vary from person to person. They could be related to an industry like farmers or entrepreneurs. It could be related to people with intergenerational wealth problems. And if that happens to intersect with someone that's younger then great.
Advisors who are working with individuals might only have the capacity to work with 200 families. What we need here for the younger generations to be interacting with larger organisations like ANZ and BNZ that can provide advice with tools at scale. And when those investors reach the point where they have questions that require more complicated and more engaged advice, then they move into the space where advisors can't engage them. And whether they're young or old, they have a problem for which the advisor provides a solution. Or else really you start to move into space that's not yours, and you're not going to be able to operate your business with efficiency and scale. So you have to know the business that you're in and successfully operate within that space. Whether someone's young or not, maybe is not as relevant or as key an issue.
ESG
Jeremy Graham 28:52 It's good to get a slightly different view. I mean from the perspective of the advisors it may not be the right group of people for their business. I think play to their strengths is really summarising what you're saying. Excellent. We'll move on to an emerging and potentially more divisive topic. Now the research that we did with ThoughtLab and Deloitte shows that ESG is certainly becoming more relevant in investor considerations when when making decisions and over the next three years over 50% of investors say that will become as important as financial metrics when when making investment decisions. Now we run an ESG tool in a number of countries including the UK where we have a large customer base using it and in New Zealand as well. I'd be very keen to hear the panel's thoughts on your current experience and future thoughts on ESG and how relevant it is driving investor behaviour. I'll pass on to Ryan for first thoughts.
Ryan Wilson 30:08 Prior to the post-COVID inflation crisis there was a stronger emphasis than I see right now. With inflation and unemployment having been a focus it feels like investors have gone back to first principles for the time being.
Climate change used to be an economic externality but as the extent of the impact grows it can be and is increasingly being priced in to financial markets. I’d expect that climate will continue to be a driver of investment decision making as it becomes more of an economic problem to solve. There’s certainly been a regulatory focus on greenwashing and in NZ there’s a clear regulatory requirement to link intentions to outcomes which I think will help in time.
Given the rise in geopolitical tensions and the apparent move away from a rules based world order towards a strength based order I wonder whether we’ll see more global conflict, and if so might that create more investor activism around moral or ethical causes? For me that’s one to watch.
Jeremy Graham 31:23 Good insights. Thanks. Anna, what are your thoughts?
Anna Livesey 31:38 I'm both a real ESG believer and a real ESG sceptic in a way. And what I mean by that is that I actually believe that certain environmental, social and governance issues make a huge difference to the long term profitability and viability of companies. And there's a lot of research that supports that. I think that in some ways dangling it as if it is this thing other than doing really good investment on behalf of our clients is. It's a bit of a smokescreen, so I think that it may not be top of mind.
When we position it as it has been positioned in the past as a trade off between good returns and doing good, then when times get tight, people say I can't afford that luxury of doing good. But I think that the reality is it's in fact not the trade off if you're doing ESG well. The companies who perform well in ESG are actually the companies who perform well over the long term. There are a few core exceptions that do come to mind around ethical stuff. There's things like weapons and things where you go well, there's always a market for these and some people will object to them. But when we come to the issues around climate, when we come to the issues around the governance of the company and the long term social licence of most companies that they need to build to be sustainable and I mean commercially sustainable and viable, I think that ESG is as part of being a good investor on behalf of your clients and again to the point of homework and browbeating people it's not something you necessarily need to tell people.
Jeremy Graham 33:34 Yeah, brilliant insight. Thanks, Anna. Ben?
Ben Brinkerhoff 34:02 And that might be to Ryan's point, maybe some other things are more top of mind now and this was getting a lot of attention for a while. Here's the thing. If someone walks into an advisor's office, they generally want the service that advisors provide. They have a problem. They want a solution. And so generally in that situation, ESG is not driving the engagement with the advisor. The issue the client has at present is driving whether that's an anxiety issue or whether they've just got an inheritance or whether they've just had a divorce or whether they've just sold a business or whatever it is.
There's something top of mind that is their need and they want that need satisfied and that's why they're engaging with the advisor and that's why they've sought out that relationship. It's generally not ESG that's driving now. That person could have ESG views, but in my experience with advisors, I can't give you a specific number, but feels like 90% of people who have an ESG view are just concerned about not investing in things that kill like tobacco for example. If some people that feel very strong about that and other types of things, ESG concerns are not are not top of mind for investors. If they are then they may have not sought out the advice because again, if that's driving their decision then they would have done a lot of research available online and would have found themselves already migrating towards either the firms or the the funds that specialise in that area.
I think in some respects what I'm saying is I think it's here to stay. But I don't think it's driving behaviour as maybe it once was. I think it's just a part of a suite of solutions advisors need to bring and that the key thing that advisors need to bring is not something where ESG dominates the decision, it's where ESG is brought into it in with some of the worst offenders filtered out.
Jeremy Graham 36:27 Excellent. Finally, Kylie.
Kylie Bryant 36:30 I think this is a broader discussion based on refined customer segmentation to really understand investors and where they're at. What we're seeing is a trend of retail and mass affluent investors paired with a grey tidal wave and Gen Z entering the fold. So I think what the research has told us is that 43% of Gen Y and Gen Z respondents indicate that ESG is a vital factor. And compared to boomers and the silent generation, who care more about income generation and lifestyle preservation. It doesn't mean that it's isn't relevant. It means that investors are demanding funds that are aligned to their values. So segmentation is extremely important. Another piece of research that we've done in Deloitte on 2030 advice on the mega trends, 31% of investors are reported to be actively investing based on ESG principles. So what we're saying is investors are looking for more options.
Jeremy Graham 37:37 Excellent point. On the younger generation Kylie, it's certainly what the data's showing and it ties into the previous question as well. Thanks panel for your thoughts on that. Next topic.
Cost of Advice
So the cost of advice is becoming increasingly more expensive and some people are missing out a lot. Can technology help us solve for that? So again, for initial thoughts, I'm going to pass over to Kylie.
Kylie Bryant 38:11 There's a really exciting opportunity, especially in our Kiwisaver market at the moment to provide digital scalable advice to customers to ensure that they're at the right fund and with the right information at the right time. What we're seeing as clients expectations are changing is they're expecting technology to improve accessibility on advice and they want seamless technology driven experiences in real time. From the research we're seeing, advisors are open to this shift and are looking to adopt new technologies for the provision of financial advice to remain profitable. It also will help them in the scalability thing we're seeing. We also see Robo advice as affordable accessible alternative and it's reported it appeals to a wide variety of audiences, especially the younger generation, so it's definitely a space that's exciting and innovative, and one to watch.
Jeremy Graham 39:24 Absolutely. Anna, your thoughts?
Anna Livesey 39:27 I think the technology in some ways is kind of obvious that we can all say what's going out there. We know about robo advice. We know that these things can be low cost and and personalised to a certain extent, the piece that really strikes me, and again I'm harping on the same thing as people say, oh, Robo advice hasn't been as successful as it should have been. People don't like it. And my answer to that is, well, then it wasn't done right. And I don't mean that the advice wasn't right. I mean that the design of the tool, the design of the interface, the understanding. The customers, the understanding of their mental models and the quality of customer research and design work that went into creating the flow, the interface, the reassurance, the trust, the connection with customers wasn't good enough, because what we do see is that people who interact with a really well designed, thoughtful, well tested piece of technology, which they're not even probably looking at, is technology, right? It's just it's their phone, in their lab, which they're younger people find it really satisfying, convenient, and reassuring.
There are a few things in there that are important to understand. We know that from our research that people don't make these decisions on their own, especially younger people. There's someone in their lives. Sometimes it's their aunt who's a tax lawyer or their dad, who always helps them or, you know, even their best friend who's gone to accounting school or whatever it is.
One of the things about designing a digital experience is that you need to allow for it to be shared in a way that protects that person's privacy and doesn't require them to kind of show all of the antenna, you know, financial things, but allows them to actually take something to their trusted other person and go does this make sense to you even if they've understood it? I feel comfortable with it. They won't make that decision until they've had a chance to talk to someone else, so it's their kind of understanding. Of what people's mental models and behaviour in social and emotional needs are that actually allows the technology to work at scale, and so that's the piece. I think that everyone needs to be super aware of to get this to work.
Jeremy Graham 41:39 Absolutely. Trust is the keyword there, isn't it? I mentioned that in the beginning. It's technology that can solve some of the scale problems, but you're never going to eliminate that need for some sort of link between another human who that person trusts. At the end of the day, people see investing as sort of giving their their cash away. And they they need to feel that is the right decision to make. So the design is critically important. Ben, very keen to hear your thoughts on this one.
Ben Brinkerhoff 42:17 I want to see what Anna has in mind, because that sounds wonderful. And and I this is a space, I'm sure that someone's going to crack this in in the way that she's outlined. I haven't seen that. I've seen attempts at it, and I've seen some cool things. But I think one of the reasons advice is getting expensive, at least in in my experience, is that we've been dealing with compliance for 17 years and compliance has been changing every couple years. The cost for humans to keep up with that and comply with that has just been increasing and increasing and that's been a treadmill that's been very hard to get off of. And I don't know that we're going to get off of it anytime soon. If someone can forecast that, I guess maybe this is the wrong panel to ask that question.
However, I would say that in America, when I was in my 20s. What did I do? I went straight to Vanguard. Opened up an account. I put my IRA in there. I did that in my 20s, right. There's a way for someone with $0 to invest very inexpensively and to get great products. That's been around for a long time. In the meantime, by the way, the market share for independent advisors has tripled in the United States, even in the midst of all these tools. So I think there's a distinction between advice and getting invested. And fortunately, right now, New Zealand is very inexpensive to get invested and to digitally engage as a young person to get invested. They don't know.
I have a lot of these people in my life. Someone was mentioning earlier. Oh, someone's going to to your friend. You're going to talk to your aunt or uncle. You're going to talk to your friend. You're gonna talk to your friend's uncle. I'm like the weird uncle that all the young people in my life come to. They're like, what should I do? How do I get invest. And I introduced them to tools like Simplicity and Kernel and figure out what they want, what they're looking for and try to get them as a solution because they don't know what they want per SE.
They know if they invest and they engage, then all their worst case scenarios get better. And fortunately, right now, New Zealand, we have inexpensive, easy to access, simple to use solutions to get your money invested. People are not looking for these channels for advice per SE, right? And maybe that's going to come through some of the innovations that Anna was talking about, but they are looking to get investment understanding. And fortunately there are tools right now available to us to do that. And do that at scale and to do that without humans that make things expensive. And I think that's a wonderful thing. And that probably didn't that didn't exist here 20 years ago, even though it existed in the states. And we should all be grateful for that, because we need people to engage young and get start with an investing experiences, using some of the tools that we've been talking about earlier so they can start to begin their wealth building journey. I guess in summary I think there's things right now available that are filling this need and I'm sure that those things are just going to get better, to decrease cost and increase engagement.
Jeremy Graham 45:50 Thanks, Ben. Final thoughts on this topic, Ryan.
Ryan Wilson 45:56 There's a clear opportunity for a digitally based, scaled advice proposition for a larger customer base. Technology is advancing quickly and AI tools allow us this opportunity, both in identifying the right moments to start a conversation as well as the right things to say in the right way. It’s an interesting space and one I’m really excited by. There will always be room for a relationship driven model and I believe that an expert human will always be better that the best digital process.
Kiwisaver
Jeremy Graham 47:06 Very good. Thanks, Ryan. We'll move on to the last question. So Kiwisaver: New Zealand has a retirement savings plan that's been in place for the last 15 years years now, but it is still relatively immature compared to some of our sister and brother markets like Australia and the UK. As stated in a report from the Retirement Commission in December 2024, average KiwiSaver balance in New Zealand is $37,000, with the average balance for women being $34,000, which is concerning as both are too low. Beyond addressing the disparity, what measures can be taken to boost KiwiSaver balances and enhance retirement outcomes for kiwis? So, Kylie.
Kylie Bryant 48:03 I think this is a great report. It emphasises the need for structural changes to ensure equitable retirement outcomes for New Zealand. I think some of the key points to touch on is the low contribution rates and advocating for raising the default contribution to at least 4% and with employers matching that I think is an interesting opportunity. Like I said, the balances are low across the board after you know, 18 years in the scheme which is a problem.
And there's also challenges around gender. Research reveals 36% gender gap and annual contributions primarily to the gender pay gap. And you know, we've got these disparities and systemic pay gaps and key giving responsibilities, which is challenging. And we're seeing some companies actually continue to pay through maternity. That's always an interesting option for companies to continue to do that, which you know will help. And then we've got the employee contributions. Less than 10% of employees contribute above the minimum 3%, so that's cause for more proactive employee policies to support the savings schemes. I think it's really important. The Australian market I think is 13 years ahead of us that we're $5 trillion industry. I think there's a lot we could take and learn from them as as we continue on this Kiwisaver journey. It is absolutely changing people's lives, it's positive, but there's a lot more we can do.
Jeremy Graham 49:51 I completely agree. Ben Brinkerhoff, your thoughts on this?
Ben Brinkerhoff 50:05 The millionaire next door is a book written in the 1990s in the states. It's sold 3 million copies. The millionaire next door in the United States made their money in the share market. The millionaire next door in New Zealand made their money in the property market. And so culturally, they're very, very different. And here's the thing, it's very difficult as an employee in New Zealand to get ahead.
You know where where's the tax incentives in this country to get ahead? Right to build wealth. Like the the amount of money that the government pulls out of Kiwisaver, it must be over a billion now. They pull every year out of Kiwisaver. Out of those balances and in Canada in the United States and Australia and in the UK, there are tax incentives to save for your future. Where are the tax incentives really to save for your future in New Zealand? What we're doing is we're yanking so much money out of that account. And so how do I make money in a tax advantage way in New Zealand? I'll tell you what I do. I invest in property, I can deduct my interest.
Until we put the actual incentives in place that society is saying we think this is valuable, we will give you incentives to create your own financial stability. I totally agree with what Kylie was saying about contribution rates and that's very important. But frankly, why do I put my money into a fund where it's tied up where I don't get tax incentives to do that. You know, it's hard to get it out if I need it. That's a very difficult ask, right? They need to be done together in my view.
Jeremy Graham 52:55 Thanks. Ryan?
Ryan Wilson 53:00 As an industry, there's lots that we are doing which is which is making a difference. The average investor holds significantly more on growth assets now than they did 10 years ago. In times of market dislocation or severe market events, actually we're not seeing investors running to safety or enter the extent that we would have seen in in previous you know previous instances. So we are actually educating our customer base and we are moving towards, the the right things. I tend to agree around contributions, it's really important to look at the ceilings. We will soon have people leaving school and entering the workforce who were not alive when Kiwisaver launched. And yet the contribution settings have not really moved on from that first generation setting. And so you know for that second generation, the literal second generation of members coming in, you know, we need to have contribution settings that reflect that.
Jeremy Graham 53:59 Absolutely for final thoughts on the final question, Anna.
Anna Livesey 54:05 What we see in our research is that customers and again, I'm talking about mass market customers, they're not people like Ben who are in there in the 20s and interested in investing. They're just people who are like, I just got to do the right stuff to get through my life. They need to sign up or not not opt out of Kiwisaver. They assume the settings are kright and what we know is that they're 3% with the matching 3%. Probably not going to be enough for most people to have the lifestyle that they want when they get through to retirement.
And so one of the things when we think about people's mental models. My three things are right contribution. Don't panic is what can we do with really simple tools. And actually interestingly this is often advice. It's actually just showing the information, showing the difference that changing your contribution makes to your end outcome over time. And what can we do to support people to change their mental model from I've done the job I need to do to actually there's a little bit more that I need to do here is for them to understand the benefits to their future selves of making that quite small decision.
One of the things that has changed that is actually a huge difference is providers. We can now change people's contribution rates for them. And we didn't used to be able to do that. To be making it clear to people what the implications and what the trade-offs are of offsetting the contribution rates. That is a change that gives us more power to support our customers better.
Audience Q&A
Jeremy Graham 56:23 Couldn't agree more. Thanks, Anna. Look, we've got 5 minutes left in the webinar and we do have a few questions that have come through the Q&A function. So we'll we'll answer as many as we can in the remaining time. So I'm going to pass the the first question over to Ryan actually and it's "Will ageing demographics likely have an inflationary or deflationary effect on our economy", Brian?
Ryan Wilson 57:00 That's a great question and my crystal ball is in the shop getting repaired so difficult to provide a specific answer. Sources of inflation are myriad, right? So it'll be interesting to see whether the impact of the demographic changes and the wealth transfer that will follow that, and then how that wealth transfer then flows through to the economy and whether it's saved or spent, and basically what the people who receive it do with it. You know how that works versus the the impact of productivity improvements, supply chain improvements as well; it's quite a complex topic and I probably wouldn't want to speculate.
Jeremy Graham 57:42 There are so many factors that contribute to inflation and deflation. Does anyone else in the panel have thoughts on this particular topic? All right. We'll move on to the next question, which I'm going to pass over to Anna. So how do you see financial services helping with big social issues like housing, wealth transfer between generations or making the economy more inclusive?
Anna Livesey 58:07 I think it's a really interesting question. You'll probably be aware if you've joined us. that there has been new legislation that's come through on the conduct of financial institutions. That includes a requirement for us to treat our customers fairly and also a requirement that we support customers to make informed decisions. This puts a clearer need for us to be really clear about what those trade-offs are for individuals on the broader scheme of things.
You know, one of the things I think that it is interesting to understand if you look at something like investing in social housing, for example, which on the face of it you've got all this money in Kiwisaver, can we just roll some of that over into social housing? The truth is that it's quite complex and expensive to manage the investment. If you look at our our funds for example, and I'm not up to date with the with the recent number, but you know, there is an awful lot of money is in there. And when you're trying to provide effective returns at scale at a reasonable price for your investors, one of the trade-offs that you tend to need to make is that you can't manage those much smaller, more bespoke investments. You just don't have the people and the capacity to do that within the funds within the fees that you're charging your customers.
So there is a real space for that type of investment. And I know that there are some providers out there who are moving into that space and who feel that they've got permission from their shareholders and their investors to do that sort of work. But it's not as simple as sort of clicking a button and being able to invest in there. It's not so much about will they have good and stable returns, but how much work does it take.
Jeremy Graham 1:00:38 Excellent insights. We've timed out. Thanks, Ryan. Kylie, Anna and Ben for attending. It's excellent to hear your views on these key topics and your collective insights and passion for wanting to improve the wealth industry in New Zealand and to open it up further to more investors. So thank you very much and thanks for everyone who attended the webinar today. We'll conclude there.