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BNZ scheme may bring bank sales issue to a head

BNZ’s much awaited, full-scale entry to the KiwiSaver market is an opportunity to address one of the biggest issues facing advisers.  

Thursday, January 24th 2013, 12:20PM 6 Comments

by Philip Macalister

There has been a lot of commentary about why it has taken BNZ more than five years to get into what is the biggest and most successful financial product in New Zealand.
 

I saw a comment elsewhere asking why BNZ had not got into this market previously.


The commentator didn’t know the answer, but I asked that question many years ago.
 

BNZ’s view was that if it was to promote KiwiSaver then it needed to be giving advice with the product (not mortgages).


At that stage BNZ was developing its storefront concept and it didn’t have the capacity to provide advice.

Indeed it still doesn’t really. Whether it embraces advice will be interesting to watch considering its stance around brokers and home loans.
 

One thing which has been missed by many is that while BNZ hasn’t offered its own KiwiSaver product it has offered the AMP scheme to business customers.


This too has been a point of contention.

A number of years ago AXA bought BNZ’s managed fund business. As part of that deal there were some agreements relating to how the two businesses operated.
 

However, when KiwiSaver came along a couple of years later BNZ didn’t pick the AXA product for its clients, rather it started using AMP.

Of course the irony here is that AXA has now been acquired by AMP and one of the key protagonists at BNZ is now with AMP.

My prediction is that BNZ will work to shift these customers from the AMP scheme to its own one.

The other thing which has become clear, and is well illustrated in ASSET Magazine’s annual KiwiSaver report, is that banks are gaining a stranglehold on KiwiSaver.
 

All the banks are aggressively getting customers to switch to their own schemes. They are being incredibly successful and it goes to show the power of bank distribution when they focus on a strategy.
 

BNZ will be no different. It will engage in this practice and grow its book reasonably quickly.
 

However, this is where the regulators need to step in.
 

One of the biggest issues in the financial planning world is what the FMA is allowing banks to get away with.
 

It is allowing banks to essentially sell and promote KiwiSaver through non-AFA staff while at the same time telling financial advisers they can only work in the KiwiSaver area if they are Authorised Financial Advisers.
 

This is patently unfair and needs to be dealt with. Bank customers are being coerced into scheme with no advice and no doubt in many cases will be in inappropriate funds.

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

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Comments from our readers

On 24 January 2013 at 12:49 pm Well said that man said:
Not sure what else we could expect. Beat the little guy who is trying to do the job properly, but let the powerful banks get away with what is, after a mortgage, probably the most important financial decision the ordinary person in the street ever makes. Financial and Retirement planning is so underemphasised in this country. We are generally pretty illiterate about how all this works and its importance, yet still the regulators allow, basically sales assistants to peddle this and other products. No advice, no review, other than to tell you to up your investment, and they will take their 25 basis points. Criminal
On 25 January 2013 at 8:22 am Collin said:
I think BNZ may have got this one wrong. Their 'outsourced' KiwiSaver approach was actually unique amongst the banks. The margins on this model should be attractive - there is no scheme infrastructure and marketing the scheme can leverage of existing networks and resources. Converting customers can be a very costly exercise and based on what value proposition. An alternative option could have been to arrange more scheme distribution partnerships and offer greater choice to customers.
On 25 January 2013 at 9:43 am Austin Fisher said:
I think BNZ's focus will be on the retail side.

People who join KiwiSaver through an employer preferred arrangement (like the BNZ thing with AMP) remain in that scheme until they, personally, choose to switch.

If BNZ now convinces their employer to prefer their new scheme instead, it doesn't matter to the existing KiwiSaver members. The change will only apply to future new entrants.
On 25 January 2013 at 11:59 am Independent Observer said:
Another perspective is to consider it what is a ‘bank’: Today’s modern retail bank is simply a broker – matching willing & able market participants.

It’s not uncommon for brokers to outsource capabilities until it becomes viable to internalize. Brand can be retained, and profits maximized (without distractions) - not a bad strategy to adopt for an embryonic industry such as Kiwisaver. Once the optimum point is achieved, the broker can consider whether to build or buy the required infrastructure.

Given the large number of suboptimal Kiwisaver providers around, I reckon that BNZ could make a relatively cost effective purchase and attain Kiwisaver market-share within an extraordinarily short space of time.

Keep a close eye on existing Kiwisaver providers who are struggling to capture market share… as these will be obvious targets

Of course - the next step is retaining Kiwisaver customers once their balances become "significant"... but that's another story...
On 25 January 2013 at 2:41 pm He said she said:
Interesting point made at the close of your article. While I tend to agree, I think the FMA would be hard placed to exert more control in this regard.

There is a fundamental difference between "selling" & "promoting" in this instance, which you've so readily coupled together.

It is the banks' perogative to leverage their frontline channels etc to "promote" this product so long as they're smart enough to have an AFA following that with an actual consultation as the "seller".
On 25 January 2013 at 5:49 pm Andy said:
Why are New Zealand banks so stubborn. Elsewhere in the world, brokers - erm - Advisers are embraced. They take the risk away from the bank staff, reduce bank costs, and keep the banks on the cutting edge of product development in order to promote more broker business. Here though, it appears banks are hell-bent on having it all their way, ultimately preventing New Zealanders from getting true and accurate financial advice. Banks - LISTEN - ONE SIZE DOES NOT FIT ALL!

The FMA and the Commerce Commission should be stepping into the ring any minute now.

Nuff said.

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ANZ 6.49 5.10 5.59 5.59
ANZ Special - - 4.99 -
ASB Bank 6.50 5.49 5.49 5.75
ASB Bank Special - ▼4.89 5.10 5.39
BankDirect 6.50 5.49 5.49 5.75
BankDirect Special - ▼4.89 5.10 5.39
BNZ - Mortgage One 6.90 - - -
BNZ - Rapid Repay 6.49 - - -
BNZ - Special - - 4.99 -
BNZ - Std, FlyBuys 6.49 5.19 5.39 5.29
BNZ - TotalMoney 6.34 - - -
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Credit Union Auckland 6.70 - - -
Credit Union Baywide 6.45 5.75 5.75 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct 6.10 6.45 6.69 7.10
First Credit Union 6.45 - - -
HBS Bank 6.39 5.39 5.39 5.39
HBS Special - 4.99 4.99 4.99
Heartland 6.70 7.00 7.25 7.85
Heretaunga Building Society 6.45 5.40 5.40 -
Housing NZ Corp 6.74 5.70 5.99 6.29
Lender Flt 1yr 2yr 3yr
HSBC Premier 6.60 4.95 4.95 5.40
HSBC Premier LVR > 80% - - - -
HSBC Special - 5.29 5.29 5.29
ICBC 6.75 5.99 6.39 -
Kiwibank 6.40 5.39 5.49 5.69
Kiwibank - Capped - - - -
Kiwibank - Offset 6.40 - - -
Kiwibank Special - 5.09 4.99 5.39
Liberty - - - -
Napier Building Society 6.50 5.80 6.70 -
Nelson Building Society ▼6.70 ▼5.65 ▼5.95 -
Lender Flt 1yr 2yr 3yr
NZ Home Loans 6.85 5.49 5.49 6.29
Perpetual Trust 7.70 - - -
Resimac 5.84 5.60 5.65 5.79
SBS Bank 6.39 5.39 5.39 5.39
SBS Bank Special - 4.99 4.99 4.99
Sovereign 6.60 5.49 5.10 5.75
Sovereign Special - ▼4.89 5.10 5.39
The Co-operative Bank 6.45 5.15 4.99 5.35
TSB Bank 6.49 ▼5.45 ▼5.49 5.75
TSB Special - - ▼4.99 5.40
Wairarapa Building Society 6.20 5.75 5.95 -
Lender Flt 1yr 2yr 3yr
Westpac 6.40 5.49 5.49 5.59
Westpac - Capped rates - 6.74 6.99 -
Westpac - Offset 6.40 - - -
Westpac Special - - 4.99 -
Median 6.49 5.45 5.40 5.40

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