Call for govt to subsidise financial advice
New research showing most of the 1.9 million KiwiSaver members haven't used financial advice has sparked a renewed call for the government to step in.
Friday, February 17th 2012, 6:30AM 
9 Comments
by Niko Kloeten
The research, reported yesterday on Good Returns, found fewer than one in five KiwiSaver members had used the services of a financial adviser, with many opting instead for advice from friends and family, books or the internet.
The results of the survey aren't much of a surprise but they show some of the flaws in KiwiSaver's design, according to Institute of Financial Advisers president Nigel Tate.
"The simple answer is yes," he said when asked if the findings were expected. "However, the reason for it is more important than the fact it is occuring. It's due to the fact the government didn't infuse in KiwiSaver any requirement to get advice.
"I've been saying this for a while: when they incorporated it they should have said, instead of giving you $1000 up front [government kick-start] we're going to give you $500 up front and $500 to pay for some advice.
"A lot of people are in the wrong types of investment for their circumstances - they're doing it because they don't know any better."
Tate said although the opportunity with the kickstart has been and gone, the government could still use some of the money it spends each year on member tax credits to direct investors towards financial advice.
The members who are least likely to use advice are those who could benefit from it the most, he said.
"That's almost hand in glove- the ones that don't know they don't know, don't know what they don't know that they don't know."
One positive, he said, is that investors are likely to be take more interest in their investments and seek the help of advisers once their KiwiSaver funds reach a certain size.
"Studies internationally show that once they start hitting $10,000 to $20,000 people start taking notice of them. However, if you're in the right fund you'll get to that point a lot more quickly.
"The difference between a growth fund and a cash fund could treble their returns, although at the moment it could halve their returns."
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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Comments from our readers
This should all be ok so long as they fill out the risk profile form and sign this off.
People can go to the Bank and do this and of course their advice is only towards their product.
The most important thing is to start Kiwisaver.
AFAs need to get involved only when the client gets the lump sum or if they want their funds to be put into an abnormal diversification (currently this would be less than 2% of all KiwiSavers)
I personally have over 800 KiwiSaver clients and it would have made no difference at all weather I was an RFA or AFA as i still would have put them with the best provider and fund for their situation (in fact i have changed over 600 of my KiwiSaver clients from what i originally showed them to a better provider and i have never charged any client for doing this) and i can bet you that not many other advisers (AFA or RFA) have done this and i can also bet that no QFEs or banks have ever done this.
All advisers weather they are AFAs or not have to prove they are putting the client with the best provider for the benefit of the client and not the adviser or provider
How can Bank's, QFEs or a KiwiSaver providers own website that clients can sign up on can honestly say they are doing the best for the client.
You also haven’t got the point of the FMA. It does not matter a politicians integrity, who you trust with your KiwiSaver client funds. It is whether you followed the correct process in the first place. A risk profile form is merely part of the process, if you can’t understand this, then further reason you should hand in your AFA rifle to the FMA.
Moreover, for your clients sake, I hope, the FMA inspect your 800 KiwiSaver client files in the very near future.
But on the other hand, they have KiwiSaver and default funds and no people can join KiwiSaver without any advice.
With only 2,000 AFAs and almost 2,000,000 KiwiSavers, there is no way the AFAs have the capacity in terms of time to give advice to KiwiSaver members, and most KiwiSaver members do not have the interest or understanding or will see the value in gaining advice from an AFA.
Some sort of contribution to encourage members to seek financial advice makes sense because otherwise they simply wont seek advice.
But that doesn't solve the capacity problem.
Allowing RFAs to advise on KiwiSaver - provided they complete some appropriate investment-related training - and have an appropriate level of competency - would increase the numbers of advisers to meet potential demand.
Without some sort of incentive for KiwiSaver members to seek advice, the majority will not be investing appropriately, but wont know that until they get to retirement and discover how little help their KiwiSaver funds will provide them.
There will be people reading this that will have no problem with that at all.
There are great advisers out there, but there remains too many parasites.
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