Kernel passes milestone, onboards advisers wanting KiwiSaver for accumulators

Kernel FUM grew 89% last year, with an increase of more than 50% in 2024 to date. April saw fund inflows exceeding $170 million, followed by the highest month of retail customer applications in May.

The company has made a heavy investment in technology and its wealth platform over the past 18 months to set the business up for growth, says founder and CEO Dean Anderson. The annual recurring revenue, year-on-year growth rate is consistently above 90%.

Kernel is forecasting assets under management to grow six-fold over the next four years.

Starting with three New Zealand equity funds in late 2019, its offering has since grown to 17 index-tracking funds, four actively managed fixed interest funds, two diversified funds, on-call savings accounts and the Kernel KiwiSaver Plan.

It has followed an organic growth path, with both wholesale and retail customers. Of Kernel’s current FUM, wholesale clients, composed of financial advice firms, family offices and not-for-profits, now make up roughly 52% compared to its first year of business when wholesale represented closer to 80% of FUM.

Of Kernel’s customer base, one third are regularly investing and 26% use two or more of Smart Saver, KiwiSaver and investment funds.

The KiwiSaver scheme, which launched two years ago as a direct to retail product, accounts for around 25% of Kernel’s FUM.

Catherine Emerson, head of customer strategy, says most advisers access Kernel funds via wealth platforms such as Consilium, ANZ OneAnswer or NZX Wealth Technologies. Kernel began getting requests from advisers looking for a passive, low-cost KiwiSaver plan to suit ‘accumulator’ clients - those starting their wealth creation journey. These clients are typically aged 30 to 45, are regular savers and investors on good salaries but with low value in terms of assets.

Last year, in its first direct relationship with an adviser, Kernel joined Christchurch firm Cambridge Partners to pilot an advised KiwiSaver offering. In the last six months it has on-boarded 12 advisers including First Capital as well as smaller, independent advisers around the country. It is currently working with another 10, says Emerson.

Fee for service model

She says the advisers Kernel is working with want an entirely different type of service that they can offer accumulator clients who wouldn’t be looked after under more traditional large-balance, commission-based service offerings. “They’re taking a different approach in the KiwiSaver space over the next ten to 20 years and this is a starting point for that transition.”

This includes operating a fee for service model as Kernel’s low headline management fee of around 0.25% means there’s no room for paying commission.

“From a business and personal standpoint we don’t believe that is in the best interest for clients, or the way the industry should necessarily work,” says Emerson.

“We’re strong advocates for people getting advice and helping advisers charge a fee for service, whether that is a percentage or dollar-based fee. So we’ve built a platform to facilitate service and fees for advice.

“For most advisers we work with, that's 0.25% to 0.40% on top, and it’s an entirely separate fee which is disclosed as such. Sometimes this leads to challenging conversations with advisers such as when they ask what happens if the client wants to stop the fee, and the answer is, ‘they will stop the fee.’”

Emerson says KiwiSaver for a lot of New Zealanders, particularly younger New Zealanders, will be the biggest asset of their lifetime, outside of their property.

“It’s a core part of wealth and retirement planning. If you look at the stats around intergenerational wealth transfer that’s coming in the next decade, it’s all going into the hands of millennials but there are not a lot of advice firms set up to cater to that target market.

RBNZ and Statistics New Zealand data estimates around $1.11 trillion will transfer over the next two decades in New Zealand. Those born before 1966 currently hold 60% of New Zealand’s $2.29tr total individual net wealth. This will be transferred by those aged over 55 in the next 20 years.

Morningstar puts Kernel at number 20 in terms of KiwiSaver market share with $187 million FUM at the end of March 2024. This was up from $121 million at the end of the first quarter 2023.