Data

I use two datasets in this study. The first dataset consists of proprietary KiwiSaver

account information and the second dataset contains KiwiSaver returns obtained from the

Morningstar database. Combining the two datasets allows me to assess how individual

investors behave in relation to receiving financial advice and how the performance of

funds differs between investors. I obtain the primary dataset from four large KiwiSaver

investment fund companies. The data includes information on 405,107 individual

investor accounts.25 Of the four large KiwiSaver providers, two are large retail banks, one

is a mutual fund investment firm, and the fourth KiwiSaver provider is a government

24

See New Zealand Inland Revenue (2012a). Website http://www.kiwisaver.govt.nz/statistics/ks-stats-13-05-31.html 25 _{There is an implicit assumption made the 405,107 individual accounts are independent which was made at the time} of generating the results for this essay. This paper was then published in the Pacific Accounting Review under this assumption and subsequent household data became available to study in later chapters.

default-provider.26 _{The data is cross-sectional and recorded on 30 June 2011. As the data}

comes from four separate providers this provides a wider representation of the population

involved in KiwiSaver and reduces potential KiwiSaver provider bias. The KiwiSaver

population I observe covers 23% of the total KiwiSaver population as at 30 June 2011,

where there are 1.76 million investors in total.27 In order to assess whether the data used

in this study is representative of the total KiwiSaver population, comparisons in dataset

summary statistics are measured against Zhang (2011), which also uses KiwiSaver data

from a separate large KiwiSaver provider. Zhang (2011) uses the individual investment

fund choices of 196,513 investors from a large non-default KiwiSaver provider over the

period of October 2007 to November 2010. When investor demographics are compared

between the two datasets, the variables of age, gender, tax and funds under management

are in line with previous studies.

Table 3.1 provides the descriptive statistics of the number of investors, and information

related to investor gender, age, level of funds invested, tax rate, financial advice, and the

average asset allocation for the asset categories of cash, bonds, property and equity. The

table shows that 40,776 investors from the total sample of 405,107 have received financial

advice. This equates to 10% of the total sample. Each individual in the dataset holds at

least 1 investment fund and 13 investment funds at most. Of the 13 investment fund

options available to choose from, 6 investment funds are multi-asset funds (including

cash, bond, property and equity asset allocations) and 7 are single asset-funds (cash,

26 _{Default providers are an important component of KiwiSaver. Default providers have special contracts with the New} Zealand Government that require them to meet additional reporting requirements, with default providers' activities and their default investment funds being closely monitored. This is because KiwiSaver members joining default providers have not specified a choice of provider (or investment fund for that matter); hence, they are placed in relatively conservative investments (New Zealand Inland Revenue 2012a).

domestic bonds, international bonds, domestic property, international property, domestic

equities and international equities).

Table 1 shows the descriptive statistics of the number of investors, and information related to investor gender, age, level of funds under standardised variables, level of funds under management, tax rate and financial advice, as well as the average asset allocation for the asset categories cash, bonds, property and equity. Panel A of Table 1 shows the full sample descriptive statistics, Panel B displays information on gender, age and funds under management for investors who receive financial advice, and Panel C displays information for investors who have not received financial advice.

Panel A of Table 3.1 shows the descriptive statistics of the full sample and Panel B

and Panel C of Table 3.1 splits the summary statistics into financial advice and non-advice

sub-samples, respectively. The ratio of men and women in the full sample is relatively

even, with 193,683 males and 211,424 females (48% and 52%, respectively). The ratio

of men and women who do receive financial advice does not differ from the ratio of men

and women who do not receive advice. As shown in Panel A of Table 3.1 the average age

of the full sample is 34 years of age. Investors who receive advice are relatively older, Table 3.1 Descriptive statistics

Panel A: Full Sample

VARIABLES n Mean S.D. Min 0.25 Median 0.75 Max

Female 211,424 0.52 0.5 1 1 1 1 1 Male 193,683 0.48 0.5 0 0 0 0 0 Age 405,107 34 18 0 20 32 49 70 FUM 405,107 4823 5970 100 1189 2301 6618 221612 ZFUM 405,107 6.30e-08 1.00 -0.81 -0.61 -0.42 0.30 36.3 Tax Rate 405,107 19.9 6.35 0 17.5 17.5 28 28 Financial Advice 405,107 0.10 0.3 0 0 0 0 1 Cash 405,107 0.15 0.2 0 0.04 0.1 0.2 1 Bonds 405,107 0.35 0.2 0 0.16 0.29 0.6 1 Property 405,107 0.08 0.05 0 0.03 0.08 0.12 1 Equity 405,107 0.42 0.24 0 0.17 0.42 0.68 1

Panel B: Financial Advice Sub-sample

VARIABLES n Mean S.D. Min 0.25 Median 0.75 Max

Female 21,371 0.52 0.5 1 1 1 1 1

Male 19,405 0.48 0.5 0 0 0 0 0

Age 40,776 45 17 0 35 48 59 69

FUM 40,776 11,214 9,926 100 4,686 9,300 14,761 22,162 Panel C: Non-Financial Advice Sub-sample

VARIABLES n Mean S.D Min 0.25 Median 0.75 Max

Female 190,053 0.52 0.5 1 1 1 1 1

Male 174,278 0.48 0.5 0 0 0 0 0

Age 364,331 33 17 0 20 30 48 70

with an average age of 45, as shown in Panel B, while non-advised investors have an

average age of 33, as shown in Panel C. The average level of funds under management in

the full sample of investors is NZ$4,823. The average level of funds under management

for investors who receive advice is NZ$11,214, compared to NZ$4,108 for investors who

have not received advice.

The proportion of investors receiving financial advice in the data is representative and

broadly in line with previous survey based evidence in New Zealand. I find that ten

percent of investors in the sample receive financial advice. Currently, the total number of

New Zealanders who receive financial advice is not known at the aggregate level. Due to

a lack of publicly available data on financial advice in New Zealand past studies have

relied on survey based information to gauge the proportion of New Zealanders who

receive advice. For instance, in a survey of 1,000 KiwiSaver investors, Matthews (2011;

2012) finds that 18% to 22% of the sample rely on financial advice. More recently, the

New Zealand Commission of Financial Literacy and Retirement Income 2013 national

survey of 852 participants reported that 15% of New Zealanders obtain information from

a financial adviser (Colmar Brunton 2013). A survey undertaken by Roy Morgan New

Zealand found that, over a 13 year period between 2000 and 2013, only 4.6% of the

12,000 New Zealanders surveyed received independent financial advice for managed

funds, superannuation and retirement related financial matters (Roy Morgan New

Zealand 2013).

The measure I use to capture financial advice is a discrete variable. A binary variable

is equal to one when an investor has received finance advice and is zero otherwise. I

define the role of a financial adviser as the giving of financial advice; which means the

disposing of, a financial product. In New Zealand, only Authorised Financial Advisers

are allowed to give personalised advice on KiwiSaver, which is a category one investment

product under the Financial Advisers Act 2008.28 Authorised Financial Advisers are

individually registered and authorised by the Financial Markets Authority (New

Zealand’s financial markets regulatory body) to provide financial adviser services. They can provide investment planning and discretionary management services, and will

generally provide advice on more complex products. In my sample only people who

receive face-to-face advice from a registered Authorised Financial Adviser is considered

to have received financial advice. This significantly differs from previous studies, such

as Bluethgen et al. (2007), Chalmers and Reuter (2012) and Hackethal et al. (2012), which

employ the use of investor relationships with brokers, dealers and bank-employees to

study the effect of financial advice.

3.3 Methodology and results