FMA: No hard lines on KiwiSaver incentives
KiwiSaver providers can offer incentives to entice customers to their schemes, so long as they do not distract the customer from making good decisions about KiwiSaver.
Wednesday, March 8th 2017, 6:00AM 
9 Comments
by Susan Edmunds
That’s the ruling in the Financial Markets Authority’s latest guidance note.
It replaces a 2012 document that had the unintended consequence of reducing the amount of advice being given on the retirement savings scheme.
The FMA’s previous focus on personalised advice only being offered by those eligible by law to give it scared some providers off advice completely.
Liam Mason, the FMA's director of regulation, said, “We have revised and updated our guidance to clarify how the different categories of advice can be applied to ensure customers are getting the help they need. We recognise advisers and providers should be confident they are acting within the rules.”
The FMA is also issuing a consumer guide, telling people to think about whether they were being pressured and what their options were before they moved to a new scheme.
Mason said the FMA would look at the incentives offered by providers, although it would not draw hard lines. Of interest would be the size of the incentive and how they were sold.
The FMA said that incentives could achieve good outcomes when they encouraged them to get the best out of KiwiSaver.
“We may be concerned where there is a combination of a high-value incentive and an effort to influence a customer to make a significant decision,” the FMA said.
“Our concern would centre on whether the value of the incentive was such that the customer was focused on that.”
It was something that submitters were concerned about.
Glynns Financial Services wrote in its submission: “I have had one mortgage client told that she has to implement new life insurance, income protection and transfer her KiwiSaver in order to get a discounted interest rate and cashback.”
Mason said the main goal of the guidance was to help New Zealanders get the information they needed to make good decisions about KiwiSaver.
The guide makes clear the limits of what can be provided within class advice boundaries.
It says that customers can be told to be in KiwiSaver, to choose a contribution rate that is enough to get the member tax credit, to choose the right type of fund and the correct tax rate.
“A rule of thumb is that you have moved from class to personalised advice when you cannot answer a customer’s question without knowing about their personal financial situation or goals.”
In their submissions, ANZ and BNZ both asked for the guidance to be held back until after the financial advice legislation is updated.
The bill currently out for consultation would remove the class and personalised advice designations completely.
Both said, if the guidance note was issued before those changes were enacted, there could be confusion or “change fatigue” for front-line staff.
The FMA acknowledged that the law changes would effect the guidance, which would have to be reviewed. “In the meantime, this guidance recognises there is an opportunity to remove an identified barrier to New Zealanders getting the help they need to make good decisions about KiwiSaver.”
Mason said the new bill would put more responsibility on the individual adviser to make sure the type of advice they were offering was right for the customer. It would be a more nuanced approach than the class versus advice delineation.
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"A person or business taking advantage of their dominant position in a market for an anti-competitive purpose".
The Banking industry is dominated by 4 big banks who are leveraging their market power to dominate another sector - KiwiSaver.
No wonder there are almost no "independent" advisers left.
And Barry, "which Fund" has to take personal circumstances into consideration, ie time till they need to draw down, personal tolerance to risk?
Getting the right advice around retirement savings is - in a way - more important than dealing with 'today's issues', and something that the Regulator should be taking an active stance on... although: before you take a position on something, I guess you've got to have a vision that extends beyond the next 3 years... just saying.
if you want to build a house, would you rather speak to someone who has the experience of building a house hands-on or someone with the technical knowledge but doesn't know how to build a house?
just saying.
Steven the adviser can offer the client a process for deciding on the fund using those questions without it being a planning service, such as is described in the guidance. If they start asking will this be enough for my retirement then the scope of the advice could change and become personlised or a planning service is required. This highlights the issue of Class Advice Only services being conflicted because the adviser may want to get a sale and steer the client away from personlised or planning services.
The Guidance on Class Advice on transferring providers runs really really close to personlised advice. In that circumstance if the client asks the adviser what should I do (Stay with current provider or move to the one you distribute) the adviser can't answer that question without stepping over the line. I think the guidance has gone a step to far in this case.
Also Class Advice advisers (RFA and QFE) don't have to disclose remuneration or how they selected the provider they are offering. Yet there is no guidance on this matter. Why is an adviser offering Class Advice on this provider?
What is the problem that is trying to be solved should be the first starting point of any legislation.
Until they are asked, are you in KiwiSaver? or Do you want to be part of KiwiSaver?, even the basics are not understood.
Get the basics right, a reasonable fund selection risk/growth, the right tax rate and make them aware of maximising their 'free money' if they're below $20 per week and ensure that there is a reasonable timeframe on house buying, if it's and option, with an appropriate defensive approach
Personal opinions aside on providers and funds, the regulator has determined KiwiSaver providers are fit for purpose. Once these people see their balances growing, they will take the job of seeking and taking advice more seriously. When it's starting or it's a pittance they won't.
Those with larger balances, because they have been in a while, should be seeking advice from an appropriately qualified investment adviser. Maybe a threshold should be introduced for seeking that advice, >50 or >100k we know they need far more than that to retire on, it's still early days for many.
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Page nine of the KiwiSaver document gives some examples of class advice including “recommending a particular fund for people based on risk appetite”. In contrast when I determine asset allocation for an individual based on risk appetite this is “advice”. Inconsistent law. Mr Mason was quoted as saying “we have revised and updated out guidance to ensure customers are getting the help they need”. He might have added….”under pressure from vertically integrated organisations”.
One expert in this field emailed me last week and said wouldn’t it be poetic justice if thousands of NZ’ers received “no advice”, bought into growth KiwiSaver funds when they had mortgages and credit card debt and were buying a house in five years time then the markets crashed. A class action suing the FMA and the CFFC would be hilarious.
We can add to these nonsensical determinations, obviously constrained by the reality of government sanctioned light handed regulation of vertically integrated organisations, to the growing FMA library of embarrassing comments which include “If you can only sell high cost products, good for no one, that is putting your clients interest first” and “not disclosing transaction costs to investors is best practice”.
Oh dear, again. Even I'm embarrassed, again. The FMA are doing some good things but clearly they need help. The issue is important because dumb regulation impacts advisors (I fortunately have nothing to do with KiwiSaver), impacts investor outcomes and at best makes us look silly overseas. At worst it makes us look corrupt.