Classic hits of 2021 revisited (plus all the new releases)

Mint Asset Management’s Head of Sales and Marketing, David Boyle, looks back on his hit-picks for the industry in 2021... and forward to another compliant year.

Someone a lot smarter than me once advised me: “Boyle sometimes you need to look back to go forward.”

And while I have been in a rush to say goodbye to 2021 for both personal and pandemic-related reasons, good advice is always worth following.

Let’s start with January, when – as you may recall – I released a mixed-tape of my predicted top hits for the NZ financial services industry in 2021, which included these four catchy little numbers:

• FSLAA financial advice regime;
• KiwiSaver fees and ‘value for money’ guidance;
• financial product advertising restrictions; and,
• doing the default dance

In hindsight, my fab four forecasts played out pretty much as expected while rising house prices, inflation, interest rates and the bull-bear tussle in share markets continued on high-rotation in media headlines.

But the shock number one in 2021 turned out once again to be COVID-19.

After NZ seemed on the verge of achieving its COVID-zero goal early this year, I’m pretty sure no one would’ve picked that Auckland would soon descend into four months of total lockdown.

Perhaps I shouldn’t have been surprised; COVID is like an ear-worm Christmas carol or an old ABBA track that you can never completely expunge from your head. Coincidentally (or is it?), ABBA released their first album in 40 years this November; nothing much has changed.

Kicking off the regulatory set, the COVID-delayed FSLAA arrived on stage in March with the industry well-tuned to the new regime thanks to a great communication and consulation effort from the Financial Markets Authority (FMA), in particular.

The FMA has approved well over 100 full Financial Advice Provider (FAP) licences but with 1,700 or so entities still operating under the transitional regime many advisory firms could be late to the party: full FAP applications must be lodged by September next year to guarantee enough time for approval.

While FSLAA formed the regulatory back-beat over the year, the FMA’s controversial KiwiSaver ‘value for money’ report took the lead vocals.

After laying down an earlier, scratchy demo version, the FMA released an extended, hi-fidelity final mix in April, following intense feedback from the industry.

The FMA value-for-money track will continue to reverberate through 2022, I expect, as all licensed managers (the regulator pushed the target audience beyond KiwiSaver providers) attempt to sing along to the regulatory tune.

However, with fees pretty much sorted, next year the value-for-money focus will shift to services (such as financial advice) as well as, environmental, social and governance (ESG) overlays bundled in pricing: the regulator will be ensuring product labels match the content.

And another regulatory ‘guidance’ note, looking to align product presentation with underlying substance, also moved up the charts in 2021 after a quiet release late in the previous year.

Again, the final version of the FMA financial product advertising guidelines emerged in much better shape this October following a long consultation period: the regulator has clearly been listening to industry concerns.

Of course, the big dance craze sweeping the industry peaked on December 1 as the long-awaited default transfer process began in earnest.

The KiwiSaver default shake-up will see around 230,000 members shimmy across from five incumbents to the six schemes approved as compliant for the next seven years.

Interestingly, the five providers leaving the default dance floor were the only remaining original schemes appointed by the government in 2007.

Incoming default schemes earned entry mainly due to their respective limbo skills (how low can you go on fees) but they will also have to add new moves, including the balanced fund boogie and member tango to earn their keep over coming years.

Despite a decade or more of intense effort, a core group of default KiwiSaver members appear indifferent to the beat, preferring to sit it out on the sidelines. Regulators and industry will be watching closely to see if the newly appointed default providers can inspire these chronically disengaged members to get up and dance to the music.

Aside from concerns about the asset transition process itself, the new default providers will have to prove they have the chops to offer service continuity, especially if a market correction increases the tempo.

Coming into Christmas this year, a couple of sleeper items in my 2021 forecast list have also finally woken up.

In fact, the double A-side single, featuring inflation and rising interest rates, could even be a contender for the much-desired Christmas number one spot in 2021: look out for ‘Inflation is all around’, the theme tune of Christmas movie, ‘Rates Actually’.

Enough nostalgia. Looking ahead I see a few issues bubbling under and likely to rise to the top in 2022, including:

• increasing contributions and access to advice in KiwiSaver;
• discerning the clean ESG managers from the greenwashers;
• what households will do with their mounting savings (the total amount in NZ has grown from $4 billion to $14 billion in a few years); and,
• on the flip-side, debt has also surged, putting over-leveraged mortgage-holders at risk should rates spike up.

My guess, though, is that the most pressing issue for investors, fund managers and advisers next year will be rising market volatility. 

Investors have had a pretty good run with the markets over the past 10 years or so despite a once-in-a-hundred-year pandemic. I can’t predict when the good times will end (and neither can our local economists given some of their predictions over the past couple of years).

If 2022 is as challenging as my gut suggests, access to quality financial advice will be more important than ever for Kiwi investors.

Advisers with strong interpersonal skills, who have their clients’ best interests at heart and offer easy-to-understand information to improve investment decisions, should thrive.

I have been around long enough though to realise there are no certainties when it comes to investing, or musical tastes. For instance, Spotify tells me the most popular song in 2021 (with 1.1 billion ‘streams’) turned out to be ‘Drivers [sic] License’ by Olivia Rodrigo that begins:

I got my driver's license last week
Just like we always talked about...

Compliance as top-of-the-pops: who would’ve predicted that in January 2021?

As we move into another January, I want to wish you and your families all the very best for the New Year.

I, for one, am looking forward to a break after a tough year. My mother passed away in November, bringing home to me the fact that no matter how well-prepared you are for the event, the reality is painful and difficult.

I have had great support from family, friends and colleagues, who made the process more manageable.

Similarly, the industry we work in can make a huge difference in people’s lives by providing support and direction in the tough times as well as the good ones.

Ngā mihi o te tau hōu.

Disclaimer: David Boyle is Head of Sales and Marketing at Mint Asset Management Limited. The above article is intended to provide information and does not purport to give investment advice.

Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement here.