Too little action for too long: AFA
New Zealand's financial services sector needs more action and less talk to help Kiwis get the best outcomes from their investments, one financial adviser says.
Tuesday, April 30th 2019, 6:00AM 
4 Comments
John Cliffe
Authorised financial adviser John Cliffe spoke at the Retirement Policy and Research Centre and Public Policy Institute forum last week.
He said a lack of regulatory action had left many people on track to have less in their KiwiSaver accounts than they should at retirement.
Cliffe headed a group of AFAs who wrote an open letter to Financial Markets Authority chief executive Rob Everett, Finance Minister Grant Robertson, Reserve Bank Governor Adrian Orr and Commerce Minister Kris Faafoi highlighting problems with the KiwiSaver scheme.
He told the forum that the FMA had for too long taken too little action to ensure that default KiwiSaver providers were engaging with those who were automatically enrolled in their funds.
Too many people were stuck in funds that were too conservative for their investment goals.
“Ask yourself how and why did this happen? Conflicted interests. Term deposits for example make up more than 30% of most of the default funds.”
He pointed to data showing small numbers of people making active choices about their default fund investments.
He said the FMA could have done something about that earlier.
“I live in a world of action. So why didn’t the FMA just make some calls? Did the FMA have the power? Yes, they certainly did.”
Cliffe said all but the top three default providers should be stripped of their default status.
He said there was also a major and ignored issue of over-taxation.
Someone who should be on the 17.5% tax rate but was mistakenly on the top rate of 28% would end up overtaxed $109 this year and more next year. Someone who should be on 10.5% would end up paying an extra $181 this year.
Cliffe said it was too hard for members to have their correct tax rates loaded at present. "So not only are all default members automatically taxed at 28% so are all auto enrolled members."
He said, if the nine default KiwiSaver funds could not be properly managed by the FMA, it was questionable how it would cope with hundreds of financial advice providers.
Cliffe said financial education was needed.
“That’s the biggest thing we can do: teach our kids to be cynics [as well being financially literate]."
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Comments from our readers
Thus making the situation even worse, as AFA's won't or don't do this work by itself because of their costs and lack of returns to pay the bills in this area alone. Which is leaving the institutions that are the problem in the position of managing the problem, akin to the fox managing the hen house.
A significant own goal in the grand scheme of things. Let's continue to pour money into bank term deposits to further fund and drive our low-interest lending and leverage the rampant growth in the property market. A far cry from the original KiwiSaver mantra of invest and grow New Zealand businesses, far from it!
Cynical as it may sound, the government since the GFC, blue and red, have relied on property inflation to maintain GDP above 0%, so they aren't about to take this fuel away and find themselves with a recession on their watch either.
As Barry said the FMA manages what the government has implemented, and they are doing exactly what they have been told to... Which is maintain confidence, security and don't rock the boat too much as that money is helping us pay the bills...
The run on impact of recessionary results is likely to have wider-ranging impacts than the loss of the future opportunity on the money invested. That may apply at goverenment level, cold comfort to the individual without the savings they needed when they retire...
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I don't know that he should be regarded 'courageous' to put investors interests first, but clearly most Product Providers do not.
C'mon FMA - put investors interests first too.