Government flunks own advice standards

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The government would probably fall short of the mark if it were held to the same standards it has imposed on financial advisers, a savings expert says.

Friday, August 17th 2012, 7:04AM 2 Comments

by Niko Kloeten

Speaking at the Workplace Savings NZ conference yesterday, Paul Mersi said the default KiwiSaver schemes have a "one-size-fits-all" approach that would be unacceptable if used by financial advisers on their clients.

"Let me ask you, is the government the de facto financial adviser to tens of thousands of default investors?  And how do you think the FMA would rate it in that regard?" the Savings Working Group member said.

"Is it giving the people going in there what they deserve and what the regulatory system demands of everyone else except the government when it designs these schemes?"

Mersi said the default KiwiSaver provider system was both a "loading zone" and "long stay parking" and was doing neither role particularly well.

The default system makes no allowances for the different ages and personal circumstances of investors and many of those in the default schemes don't know what fund they are in and don't even care, he said.

"Imagine if financial advisers could go to the FMA and say they've got their clients to put a tick in a box saying they don't care what they're invested in and it relieves them of their obligations."

Mersi also said incoming standardised reporting requirements for KiwiSaver providers could increase the rate of churn between schemes by giving often ill-informed investors easier access to fee and performance comparisons.

"I think it's going to get worse as people make retrospective comparisons of performance... there's a risk of exacerbating the tendency for people to chase returns.

"It's a system that's embedding something that necessarily creates cost when the shift happens and the shift is not always informed."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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