KiwiSaver growth fuels 33% profit jump at Generate

Accounts filed with the Companies Office show the company’s net profit for the year ended March 31 jumped more than 33% to $6.1 million with fee revenue rising at a slightly faster 36.5% pace to $77.9 million.

Chief executive Henry Tongue says it isn’t just the latest year and that his company has been growing at a compound annual rate of about 35% for the last five years.

Generate’s primary product is its KiwiSaver scheme introduced 12 years ago and Tongue says it added more than 20,000 new members in the latest year, taking its KiwiSaver customers to 172,000.

The company derived $77.2 million in fees from the KiwiSaver product in the latest financial year, up from $56.8 million the previous year.
It’s much smaller unit trust, which was started about three years ago, more than doubled fee income to $738,418 in the latest year, up from $331,514 the previous year.

As GoodReturns has already reported, Generate’s KiwiSaver growth and moderate funds both delivered the best returns in the three months ended June with returns of 6.1% and 4.4% respectively, according to MJW’s latest survey.

The growth fund was fifth out of 154 funds for the year ended June with an 11% return but it was the best performer over three years with a 13.1% annual return, second over five and 10 years with annual returns of 9.2% and 8.5% respectively.

The accounts show that operating expenses grew slightly faster than revenue, up 36.7% to $69.8 million in the year ended March.

“We do have momentum. We have a massive advice business and we’re adding lots more advisers and lots more technology and that costs a huge amount of money,” Tongue says.

Generate employs 45 advisers directly and has well over 500 accredited third-party advisers who Tongue describes as partners, adding that his company is investing in technology to enable advisers to better advise their clients.

While putting clients into KiwiSaver schemes doesn’t pay advisers as much as mortgages or insurance, “it’s an unbelievably useful way to grow your client book,” he says.

It allows advisers to provide financial services to the families of existing mortgage and insurance clients and demand for advice on KiwiSaver is only going to grow.

“As Kiwis get more invested in KiwiSaver, they’re going to want more advice and we need more advisers to service that need.”

Generate is aiming to equip its advisers with the ability to cope with that demand at scale

Tongue says a particular point of pride is that 82% of Generate KiwiSaver members are in growth funds compared with the industry average of 47%.

“Those people are going to be materially better off in retirement – we’re very proud of that number in particular,” he says.

Generate paid its shareholders – all New Zealanders - $3.5 million in dividends in the latest year, down from $8 million the previous year, but Tongue says that’s just a reflection of timing differences.