Morgan Investments' business sold to Kiwibank

Peter Smith
Peter Smith
Further consolidation of KiwiSaver providers is likely after the announcement yesterday that Government-owned Kiwibank has bought Gareth Morgan Investments' businesses.

The deal includes the Gareth Morgan KiwiSaver Scheme which has $650 million under management on behalf of 57,000 clients. GMI manages more than $1.5 billion, including the KiwiSaver portion.

Dunedin financial adviser Peter Smith, of the Kepler Group, said he understood Kiwibank wanting to be part of the mainstream KiwiSaver providers, as it gave the bank further scope to market itself with a wider range of products.

"All of the larger banks have a wealth management division.

Kiwibank is just catching up. To date, they have outsourced their scheme management to AMP."

KiwiBank's KiwiSaver scheme was launched in 2010 and has 15,000 members.

The consolidation of KiwiSaver providers would become a growing trend, he said. Asteron and Huljich had already disappeared and others would follow.

Those providers on a smaller scale were unlikely to be making money.

The GMI KiwiSaver scheme represented about 3% of total members in the scheme and about "middle of the range" in funds under management compared to the 15 providers Morningstar Research monitors.

GMI was not researched by Morningstar, Mr Smith said.

"It is surprising GMI is the provider Kiwibank has taken on board. Much of GMI's promotion in the past has been about not being tied to any large institution."

Mr Smith hoped the move would lead to all KiwiSaver providers' returns being published in a consolidated report.

Forsyth Barr savings specialist Damian Foster said New Zealand still had a large number of KiwiSaver providers relative to the size of its market.

Australia had about 150 retail superannuation schemes, each managing an average of about $2 billion.

New Zealand had 33 KiwiSaver schemes, each managing an average of around $300 million, he said.

"It's worth nothing that KiwiSaver has only been running for four and a-half years relative to Australia's superannuation, which has been in place since the early 1990s."

Australia also had some separate options to retail funds which included self-managed superannuation. The self-managed option was becoming more popular as the trend continued of Australians preferring to engage more with their superannuation accounts, Mr Foster said.

Although New Zealanders were spoilt for choice with the number of KiwiSaver providers available, there was likely to be further consolidation.

"Further down the track, we can expect more ability for individuals to self-manage their accounts, particularly as account balances become more substantial."

Mr Foster said it was important to note that although GMI had been bought out by Kiwibank, the GMI KiwiSaver members who did not like Kiwibank were not stuck with that option.

They had the same rights as any other KiwiSaver member and could transfer to another provider any time they wished.

During a telephone conference, Mr Morgan said he initiated the sale process and had done so because GMI had grown exponentially.

"I've got 50 people back there and I just don't want to have to run 50 people. It's too many."

Mr Morgan said he could handle about 10 people before it became stressful.

He would remain at the business as a member of the investment strategy team and would also remain a major client of the business. He and Andrew Gawith would remain directors of GMI alongside two Kiwibank-appointed directors.

Kiwibank chief executive Paul Brock said the acquisition would be positive for the bank's earnings from day one. Last year was the worst profit in five years for Kiwibank, as it booked a $79 million charge on impaired loans.

Mr Brock would not divulge the price for the purchase, citing confidentiality.

The purchase price would have been agreed upon through an upfront commission, either in a form of percentage of assets or a dollar amount per account.

Ratings agency Standard and Poor's left its ratings on Kiwibank and GMI unchanged.



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