Bank KiwiSavers were the biggest panickers in $1.4 billion March sell-off

Friday, 22 May 2020

Clive Fernandes, founder and director of National Capital financial advisers.

Westpac and ASB KiwiSavers were the biggest panickers during sharemarket falls in March which saw $1.4 billion of money shifted out of higher-risk funds into cash and conservative funds.

Financial adviser Clive Fernandes crunched data from quarterly KiwiSaver fund updates, and found panic-switching, and withdrawals, by around 50,000 savers was most intense at banks' KiwiSaver schemes, and less pronounced at KiwiSaver providers like Milford whose savers were more likely to have had financial advice.

Fernandes found ASB had 6.4 per cent fewer people invested in its KiwiSaver growth fund at the end of March than it had at the start of the year, going from 147,480 to 138,036 while Westpac had 6.87 per cent fewer savers in its growth fund, going from 105,226 to 97,995.

Fernandes estimated the panic-selling could cost those who succumbed to it a collective $3.5b in lost retirement savings, after markets staged a recovery.

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Fernandes, who owned the National Capital online KiwiSaver advice business, said about 50,000 people with money in KiwiSaver growth and balanced funds switched into cash and conservative funds in March prompted by drops in global sharemarkets prompted by the spreading economic impact of Covid-19.

Some who were eligible to take their money out of KiwiSaver may have withdrawn it from schemes entirely.

The drops in the number of savers at higher-risk KiwiSaver funds represented about 3.75 per cent of people with money in growth funds, and 3 per cent of people with money in balanced funds, Fernandes found.

While those savers had already missed out on markets' partial recovery, which saw the funds they left clawing back much of their losses by the end of April, Fernandes said many panic-sellers would never switch back to higher growth funds, and risked a life-time of low returns.

'We estimate the collective loss of funds to be $925,664,182 in 10 years from now or $3,578,215,119 in 20 years,' he said.

'It's very odd what we have just seen with a billion dollars moved out, and 50,000 KiwiSavers moving out of growth and balanced funds,' he said.

'It just shows that people just don't understand KiwiSaver,' he said.

After previous big market-crashes, many panic-sellers did not switch back into growth funds.

KiwiSaves have a choice of cash, conservative, balanced, growth and aggressive funds, with each having a different mix of investments in cash, bonds and shares.

While funds with more share investments like growth and aggressive funds carried a higher chance of experiencing losses in any given year, they have historically offered the best long-term returns for investors with the nerve to ride out market volatility.

Fernandes did not blame individual KiwiSavers for panicking and lacking long-term personal KiwiSaver plans. Instead, the government and the financial services industry, carried the fault.

Simplicity Kiwisaver Fund's CEO Sam Stubbs is surprised that inflation – now at a 30-year high – is so low.

'I think we've been dumbing down KiwiSaver a bit too much for the past few years,' Fernandes said.

The only kind of advice many KiwiSavers had had was only ever received 'class' advice from KiwiSaver risk calculators, which suggested the type of fund they should be in without them really understanding whether it suited them, or that with all investments comes the risk of losing money.

Many KiwiSavers genuinely thought KiwiSaver was similar to a bank savings account, Fernandes said.

Sam Stubbs, founder of the Simplicity KiwiSaver scheme, said around one percent of its growth fund investors switched in March.

It could have been higher but for daily videos and communications with savers.

'We had a webcast every day for two weeks,' Stubbs said.

'We showed the history of these panics. We showed that Covid-19 wasn't a big deal in history in terms of financial markets movements,' he said.

It was about ensuring savers kept a perspective, and understood how diversified their investments were, he said.

'It really was a don't panic message,' he said.

'We did see an increase in KiwiSaver fund switching in March, with a percentage of customers moving from growth funds into more conservative funds when market volatility was at its highest, as the impacts of Covid-19 began to hit,' said ASB executive general manager private banking, wealth and insurance Adam Boyd.

'However it’s worth noting we also saw a number of customers switching from conservative to growth-funds over this period as well.

'More recently, we have seen customers feeling more comfortable moving back into growth-oriented funds as the market has bounced back a bit.

'There are lots of reasons why people might have moved funds including; looking at buying their first home, retirement, reacting to the market volatility, or wanting more security in a time of uncertainty.'

Over the last few months ASB had been consistently communicating with savers

'We have also been reminding them that although these periods can be unsettling, KiwiSaver is a long-term investment and if they are in the right fund for their goal and investment time-frame, then short-term events shouldn’t change their investment strategy,' he said.

ANZ, Kiwi Wealth and BNZ all saw lower levels of panic fund switching compared to ASB and Westpac.