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
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.
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.
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.
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.
While we're at it, the shortage of medical staff could be addressed by allowing the hospital admin staff to prescribe medicine.
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.
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.
It's interesting that the AFA's who are trying to protect their patch don't see this as the major issue.
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