Call to relax KiwiSaver advice rules
KiwiSaver should be changed to a category two product to allow registered financial advisers (RFAs) to provide personalised advice on the scheme, the Professional Advisers Association (PAA) says.
Friday, August 31st 2012, 6:00AM 
17 Comments
by Niko Kloeten
Only Authorised Financial Advisers (AFAs) are allowed to give personalised advice on KiwiSaver, which is a category one investment product under the Financial Advisers Act; registered financial advisers (RFAs) can give ‘class' advice on it but there is confusion over where the boundaries lie.
In a submission on the FMA's consultation draft on KiwiSaver sales and distribution, PAA professional development manager Jenny Campbell said the scheme had been a "resounding success story" for New Zealanders but its success had created an unintended consequence.
"The demand for advice on KiwiSaver far outstrips the availability of this advice, given it is a Category 1 product, and there are only around 2,000 AFAs qualified to give this advice," she said.
The Financial Advisers Act had made it more difficult for average clients to get advice on a popular savings product, she said.
"The ‘average' New Zealander does not have a relationship with an investment planner. They rely on advice from the professionals that they interact with regularly - and for many New Zealand families, that person is their insurance/mortgage adviser," Campbell said.
"Given that KiwiSaver is a largely ‘generic' investment, it would seem sensible to let these professional advisers give class advice on KiwiSaver, as long as appropriate processes are put around this advice.
"This advice should be able to be given irrespective of whether or not the client is already in KiwiSaver."
It would be simpler still, if KiwiSaver was reclassified as a Category 2 product, Campbell said.
"We believe that the current ‘care, skill and diligence' requirements are adequate for KiwiSaver, especially when offered as just one part of an overall financial adviser service to clients."
She said many RFAs would like to be able to give personalised advice on KiwiSaver, but the Investment module within the Level 5 Certificate of Financial Services and the requirement to be an AFA tends to be seen as a ‘bridge too far' for advisers whose only interest in investment products is KiwiSaver.
"There are significant educational and regulatory costs associated with the step up to AFA, and as KiwiSaver has very modest remuneration attached to it, it simply has not made economic sense to seek AFA status simply for this one product."
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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Comments from our readers
On 31 August 2012 at 9:11 am Russell said:
I agree KiwiSaver should be a Category 2 product providing the RFA has undertaken specific training on KiwiSaver. I also believe business insurance advice; that is Business Risk Management and Income Protection for business owners should be a Category 1 advice area. On 31 August 2012 at 9:43 am Headmaster said:
The PAA is to be commended for making the submission it has.
I have long argued that KiwiSaver should be classified as a Category 2 product. While the PAA has (correctly) put forward the case that the demand for KiwiSaver advice outstrips the available supply, I would in the first instance argue that the legislative and regulatory framework around KiwiSaver is so robust and prescriptive that it does not need the additional layer of control which is built around Category 1 products.
Re-classifying KiwiSaver as a Category 2 product is a practical and sensible move.
On 31 August 2012 at 10:20 am Mac said:
Kiwisaver is an investment product, not an insurance product. If you want to advise on investment products, do the work to become an AFA or join a QFE.
On 31 August 2012 at 11:53 am Forthright said:
Dear Mr Regulator please change the rules to allow KiwiSaver to be sold by me as I am not prepared to take the steps necessary to sell KiwiSaver under the present rules. I am also a little dim and don’t understand the difference between class advice and personalised advice. Also Mr Regulator, those 2000 odd AFAs plus the odd QFE adviser, who are qualified to give personalised KiwiSaver advice, have told me, they just can’t cope with the demand and they desperately need my help. Therefore, in the best interests of KiwiSaver investors, nod, nod wink, wink you should let me help out, In closing, Mr Regulator, please be ready, I will want to change other category 1 products to category 2 when it suits me in the near future. On 31 August 2012 at 1:38 pm MPT Heretic said:
Silly me, here I was thinking that NZers might benefit from good quality investment advice when apparently all they really need is a 'generic' product flogged to them by someone who is not prepared to meet a very basic educational requirement... On 31 August 2012 at 2:36 pm Your Kidding Right ?? said:
Approx. 15 months ago the our industry changed and some professional bodies embraced the changing world whilst others tried to find ways around the new legislation to have their members avoid having to come up to a certain standard, those advisers that took the less arduous process of becoming AFA now think ( together with their organisation) that they can arrogantly step into the market that AFAs worked damn hard to be in or protect the investment they had made in their business.
If the regulators chose to consider KiwiSaver as a Cat 2 product, then our industry is in real trouble. I am sure the 2000 professionals in our industry would stand up and fight the good fight and ensure this ridiculous notion gathers no further traction.
Lets not go back 15 months and lets take our industry forward and if you want to be involved in KiwiSaver, take Mac's advice.
On 31 August 2012 at 2:54 pm Experienced said:
Jenny Campbell said "many RFAs would like to be able to give personalised advice on KiwiSaver, but the Investment module within the Level 5 Certificate of Financial Services and the requirement to be an AFA tends to be seen as a ‘bridge too far' for advisers whose only interest in investment products is KiwiSaver."
Really? Exactly what is their interest in KiwiSaver? The Trail commission?
So what are they going to do when the balance in their clients "largely ‘generic' investment" reaches $100,000. $150,000, $200,000 and apart from their home is their only other asset? Give 'largely generic advice?'
Giving investment advice is not an easy process, it involves actually understanding your clients and their goals and their reactions to risk. That is the reason that there is education required to give advice. I fully agree with Forthright, and frankly, think that there should be more rules, stopping the bank advisers from 'churning' KiwiSaver with misinformation and 'largely generic advice' to clients.
On 31 August 2012 at 3:32 pm Dirty Harry said:
what does the P in PAA stand for? A professional adviser puts the client's interests first.
Lowering a low bar to lower levels will benefit the client how? And chopping products between categories will benefit the client how?
the following is taken from http://www.paa.co.nz/Category?Action=View&Category_id=109
Purpose
The philosophy of the PAA is summed up as "your business, your future, your choice." Our sole purpose is to serve the business interests of financial and mortgage advisers....
Right, so nothing to do with the client then. Lets not forget their wonderful holiday home scheme.
Not very professional though.
On 31 August 2012 at 3:42 pm Dennis said:
Whilst arguing to include KS to be re-classified as a CAT 2 product seems to have certain factors in its favour, I still feel that KS should be retained within the CAT 1 realm, here's why; Granted KS is well regulated and scrutinised, but if you look at the market of KS suppliers then you see a very wide offering of products, from the standard conservative / balanced suite, an options fund, single sector funds to a KS that allows you to specifically allocate your funds to certain approved assets. So whilst KS could be portrayed as being well regulated, the underlying investment choice needs to be managed via qualified and culpable advisers. Secondly as member balances increase, you won't be dealing with $5-$10k, you will begin giving advice on $50k, $100k +. Do you propose to change the rules back to CAT 2 then, or will clients still be happy dealing with an unqualified adviser on their life savings? Stick with CAT 1, and if you want to give advice on more complex product, become qualified to do so. On 31 August 2012 at 4:07 pm John said:
Any change will not address why the worst performers the biggest?
While we're at it, the shortage of medical staff could be addressed by allowing the hospital admin staff to prescribe medicine.
On 31 August 2012 at 4:42 pm Mark Jory said:
There is a simple solution.
All Financial advisers should have to complete the Level 5 Certificate.
Then there would be no need for having two categories of products.
Those advisers who want to give advice on KiwiSaver and other investment products can complete the investment sections of the certificate and those who have no interest in giving advice can avoid the investment section.
Then ALL Financial Advisers have the same minimum qualification.
On 31 August 2012 at 5:43 pm Mutley said:
Whilst a member of the PAA I really cannot endorse their stance.
Surely the key is to raise all advisers to a base level of competancies and not allow the "bridge too far" syndrome to exist at all.
As some one mentioned earlier if you don't want to do the investment segment of the current qualification structure then don't and so don't bleat about not being able to advise on an investment product.
My view is that if you want to rebuild confidence in the financial advisory market have one qualification for all and within that qualification ensure that the competancies tested are the ONLY one's an adviser can advise on.
Kiwisaver is crucial to NZs long term ability to provde income in retirement to the bulk of its citizens and I for one believe Government need to do 2 things - make it compulsory for employer/employee but also to add funds itself!
Whilst I see a current role for RFAs I believe that role needs to evolve and not by removiung Cat 1 products to Cat 2 but by raising RFAs to AFA levels.
On 1 September 2012 at 8:30 am denis said:
Joining KS for the first time, it's not such an issue. It's a great scheme and most people join it with no advice at all. Where it's going to get interesting is when balances become substantial and advisers want a piece of the action. Making KS Cat 2 will make it very easy to spirit that money away. I say keep it at Cat 1 to stop KS becoming a feeding frenzy in a few years' time.
On 1 September 2012 at 11:02 am Andrew said:
What everyone seems to be missing in this conversation is that Joe bank teller who has no idea what the are talking about flog their KiwiSaver offering and promise to waive bank fees to get you on board.
It's interesting that the AFA's who are trying to protect their patch don't see this as the major issue.
On 3 September 2012 at 9:40 am Experienced said:
Agree entirely with Andrew, I'm perplexed as to why people across the board aren't jumping up and down about the bank practices around KiwiSaver. I have a friend who worked as a 'teller' in a bank who had big targets to sell KiwiSaver, but no real knowledge of how it worked. On 3 September 2012 at 11:21 am Broker said:
Can we just agree and be happy that mortgage brokers shouldn't be selling KiwiSaver? Been there done that haven't we? (Remember NZF, Hujich, John Banks, Don Brash anyone?) Can't say that was a roaring success...Maybe there are some trail commissions in question here? On 5 September 2012 at 1:59 am patrick diack said:
If it was made a class 2 product,then Maybe I could become an RFA (with a bit of study) and start selling kiwisaver again? I promise I wouldn't pay my customers $10.00 to join, as got in a bit of trouble with the FMA. Sign In to add your comment
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