MR No. 2017 – 24
8 June 2017
KiwiSaver members who received communications created using behavioural insights were more likely to choose to move out of default funds, and less likely to transfer to another provider.
Statistical analysis of a trial run by the Financial Markets Authority (FMA), Kiwi Wealth and the Ministry of Business, Innovation and Employment found members who received content created using behavioural insights were 47% more likely to switch out of the default fund. Kiwi Wealth members who received the improved material were also 20% less likely to switch to another provider.
Default funds were mandated by the government to be low risk and invested conservatively. They are supposed to be temporary holding funds while members make an active choice about where to invest their savings. However, around 445,000 KiwiSaver members with assets of NZD$4.2 billion remain in default funds[i].
Under the instrument of appointment between default providers and the government, providers have an obligation to address the financial literacy of their members. The obligation requires providers to communicate with members and encourage them to actively choose an investment fund. The FMA is focused on the conduct of default providers and their engagement with their members[ii].
The trial involved 3,427 participants and ran from August 2016 to February 2017. Members involved received either an original welcome communication or an updated letter or e-mail which used prompts to drive behavioural change. The updated material included three easy steps to follow and framed the actions as completing the set-up of the KiwiSaver account.
Fifty-four members who received the original communication switched to an active fund, while eighty members who received the material updated using behavioural insights switched to an active fund. Kiwi Wealth is now using the updated material for all its new default members.
Paul Gregory, FMA Director of Capability said, “The FMA encourages both KiwiSaver and Managed Investment Scheme providers to use these results. Making similarly simple and effective changes can help investors make better decisions. While the number of people switching in the trial is small, the result is statistically significant and could have a bigger impact if more broadly adopted.”
Joe Bishop, Kiwi Wealth General Manager Customer, Product & Innovation, said the onus was on providers to better help KiwiSavers in default funds to actively choose investment options that best suited their needs.
“It’s that first contact that’s the key. By keeping things easy and understandable, we’re able to help members become more than simple savers – they become investors who are planning for, and maximising, their financial futures.”
A second trial using behavioural insights is currently underway with ANZ. The FMA is keen to work with other providers on similar projects.
A one-page summary of the trial is available here.
The full report is available here.
Edwin Mitson (FMA)
Ph: 021 702 036
John Mitchell (Kiwi Wealth)
Ph: 027 975 4094