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Online tools help you find the best KiwiSaver fund
 
Q.        I have worked out my investor profile so I know the type of KiwiSaver fund I should be looking for but how do I make an informed decision about the provider? They say past performance of the fund should not be the basis of choice…so what should? Is this where an expert like an investment adviser needs to be engaged?
 
A.         This is the problem faced by many KiwiSaver investors. With over 200 funds to choose from, where do you start? You have narrowed the field by working out your investor profile, but that still leaves you with up to 50 funds to consider.
 
To help with this problem the team at Sorted have created the online FundFinder tool.   This helps you to compare KiwiSaver funds according to type, and ranks them by returns, fees and service.
 
You mention the risks of looking at past performance and you are right. While returns make a big difference over time (and we would all love to be in the top performing fund year after year), looking at historic returns is not only misleading, it can be dangerous. How were those returns achieved? What risks did the manager take? Have key personnel left the company? Have they changed their strategy?
 
The FundFinder tool will show the average returns achieved by each fund over the past 5 years so you can easily see which funds have achieved the best returns. However, they also provide a drop down box so that you can see how these returns were achieved, and that will give you a good indication of how much volatility to expect from the fund. For example, there are 38 balanced funds listed with the top performer achieving an average of 12% compared with 5% from its lowest-ranked counterpart (excluding those which do not have a 5 year history as yet). Before rushing to invest in the top performer, you should first take a look at the returns year on year. The top performer in this case returned a scary -22% in the challenging 12 months to 31 March 2009 compared with -3% from its more humble counterpart. They may both be labelled ‘balanced’ but their strategies look quite different.
 
It is easy enough to switch from one KiwiSaver fund to another. You can stay with your existing provider and switch from conservative to balanced, for example, or you can change providers altogether. The FundFinder tool allows you to bookmark funds which will then appear in your ‘watchlist’. They encourage you to spend time comparing funds so you get to know the different managers’ strategies and style of communication. As KiwiSaver grows it will become easier to combine two or more funds from different managers to achieve diversification by fund manager as well as by asset class.
 
An authorised financial adviser will be able to help you - but you may have to shop around to find one who specialises in KiwiSaver. Unlike the bad old days of high upfront commission, there is little financial reward to advisers in providing KiwiSaver advice.    The advantage to the consumer is that those who do are likely to have a genuine interest in KiwiSaver. 

The relationship between fund managers and financial advisers is not straightforward. Some fund managers are happy to enter into broker agreements with financial advisers while others only use their paid staff to sell their products.   All advisers are required to disclose which fund manager(s) they work with and any limitations in the advice they give you. 

Hawkes Bay Today 15 July 2014
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz