by Tony Vidler
In financial services we have talked about it for some years, and there is no doubt that the banking institutions have been much better and more effective marketers of financial services than all other institutions.
While reading a superb report on the State of the Kiwisaver Industry in New Zealand by Colin Nefdt there was a single graph which held my attention for some time. It shows in a single picture the changing face of financial product distribution during the last 5 years.
The quick summary is banks are dominating product distribution, and geting increasingly better at it. That’s right…they are getting better at it.
In the New Zealand market our national retirement savings scheme (KiwiSaver) is an unusual beast by international standards. Every employee gets enrolled automatically in it when they join a new workplace. But they can opt out of it quickly if they choose to (and know they have that option). Even if they don’t opt out of the scheme itself they can pretty much opt out of contributing to it in reality, but remain a member. And it is no problem to enrol people via the workplace when they don’t know which fund manager to choose – we have a default provider panel. A small selection of fund managers have been appointed “default providers” and new entrants get allocated amongst them, making it an easily accessible retirement savings scheme even without any financial advice component.
As one would expect, a significant proportion of new members have come into the scheme since its inception via the “default provider” path. Employees changed, or started, jobs and with no adviser involved in helping them work out what they should do they were allocated a fund manager.
Easy money for fund managers on the default provider list. Made all the more simple as Kiwisaver is a relatively simple retirement savings scheme to understand, and very very simple to enroll in.
Yet, many in the population hadn’t grasped the incentives and benefits of joining the scheme, so financial advisers had significant success in enrolling people into the scheme as well.
5 years ago, the two primary methods of consumers being enrolled into the scheme were either through a default provider or via a financial adviser. But look at what has happened in just 5 years:
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