Government flunks own advice standards

The government would probably fall short of the mark if it were held to the same standards it has imposed on financial advisers, a savings expert says.

Friday, August 17th 2012, 7:04AM 2 Comments

by Niko Kloeten

Speaking at the Workplace Savings NZ conference yesterday, Paul Mersi said the default KiwiSaver schemes have a "one-size-fits-all" approach that would be unacceptable if used by financial advisers on their clients.

"Let me ask you, is the government the de facto financial adviser to tens of thousands of default investors? And how do you think the FMA would rate it in that regard?" the Savings Working Group member said.

"Is it giving the people going in there what they deserve and what the regulatory system demands of everyone else except the government when it designs these schemes?"

Mersi said the default KiwiSaver provider system was both a "loading zone" and "long stay parking" and was doing neither role particularly well.

The default system makes no allowances for the different ages and personal circumstances of investors and many of those in the default schemes don't know what fund they are in and don't even care, he said.

"Imagine if financial advisers could go to the FMA and say they've got their clients to put a tick in a box saying they don't care what they're invested in and it relieves them of their obligations."

Mersi also said incoming standardised reporting requirements for KiwiSaver providers could increase the rate of churn between schemes by giving often ill-informed investors easier access to fee and performance comparisons.

"I think it's going to get worse as people make retrospective comparisons of performance... there's a risk of exacerbating the tendency for people to chase returns.

"It's a system that's embedding something that necessarily creates cost when the shift happens and the shift is not always informed."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 17 August 2012 at 9:16 am w k said:

Should not surprise anyone if you were to just look at the way tax-payers monies are being spent.

On 17 August 2012 at 10:06 am Bazza said:

The financial advisers act excludes a whole raft of people and entities who have influence and make decisions that affect Kiwis finances, but that doesn't mean there should always be advice involved. And if the advice is generic or based on age for example, it could create worse outcomes for individuals. While Paul's Rhetoric sounds good, there is no practical solution to the problem. It is a bit like saying all drivers should do a driving course and test different cars before choosing for the right car. Some people will and some people wont.

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