More KiwiSaver information needed: Boyle

Questions are being asked about whether KiwiSaver members are switching providers without understanding the consequences.

Tuesday, February 17th 2015, 6:00AM 3 Comments

by Susan Edmunds

In the last two months of 2014, more than 30,000 KiwiSaver members changed provider. On an annual basis, that increased from 126,000 in 2013 to 149,407 in 2014.

Commission for Financial Capability group manager investor education David Boyle said he expected those numbers to grow over the next five years as the market matured. “My concern is around people switching and not understanding the reasons why.”

Some might be chasing return, he said. But that did not take into account the fact that past returns did not indicate future returns – or that the risk profile of the high-performing fund might not be right for them.

Boyle said people who were in a conservative fund by default and saw strong returns from a growth fund needed to understand that they would be moving to a riskier option if they shifted.

“It may not be appropriate for their circumstances. We need KiwiSaver members to be aware of what the fund they are in before looking to another provider. The fund itself determines return a lot more than the provider. If you look at conservative funds today, it doesn’t matter who the provider is, growth funds would have outperformed.”

There was also a risk that people were changing because of factors such as being able to see their balance online alongside their banking, he said.

“It has to be a well-informed transfer. There should be more emphasis on providers ensuring the information is getting to customers before they switch so they’re switching for reasons other than convenience.”

It would become more important as balances grew bigger, he said, and advisers could play a role. “Lots of New Zealanders don’t see the value in an adviser so we need to drive that awareness. With a plan or strategy, the outcome can be a lot better.”

FMA spokesman Andrew Park said issues around the way KiwiSaver products were sold was a key focus for the regulator this year.

In its Strategic Risk Outlook, the FMA says it wants to address the mis-selling of financial products including KiwiSaver and insurance.

“Competition for KiwiSaver business is expected to intensify. From a regulatory perspective, we are concerned that members receive appropriate advice and support when they transfer their KiwiSaver. Some of the sales practices we have discovered through our monitoring activity do not reflect the best interests of customers. With this in mind, KiwiSaver mis-selling and particularly KiwiSaver switching sales processes and advice will be key monitoring themes for our team.”

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Comments from our readers

On 17 February 2015 at 11:57 am R1 said:

Haven't the FMA been concluding settlements with some of the banks for mis-selling swaps to farmers? Presumably they will also be pursuing those who have been part of their finding that "Some of the sales practices we have discovered through our monitoring activity do not reflect the best interests of customers". Isn't this a breach of the Code? Mis-selling KiwiSaver schemes is a very serious matter for investors, damaging to the industry and the FMA has responsibility for stopping such practices and holding to account those that have been mis-selling/not acting in the interest of their client, surely. Perhaps they hoping to get jobs in the industry as their next career move or have worked for those that are identified as not working in the best interests of their clients?

On 20 February 2015 at 9:54 am Ahem said:

Well said R1.I would suggest that perhaps politician/quango could be added in there as said ambition.

On 6 March 2015 at 4:47 pm Murray Weatherston said:

Does anyone else appreciate the delicious irony of a former bank Kiwisaver distribution chief now arguing that Kiwisaver switchers might not have been well advised?

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