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Tate: Advice more important than scheme

Allowing default KiwiSaver schemes to approach their members to advise them on their investment mix would be a better way to improve financial literacy than ditching default schemes, says the president of the Institute of Financial Advisers.

Monday, February 4th 2013, 9:24AM 4 Comments

by Susan Edmunds

Kiwbank says default provider arrangements do not encourage financial literacy and has called for them to be dropped.

The contracts for the providers running the default KiwiSaver schemes are due to run out next year and the Government has asked for feedback on whether any changes are needed.

Kiwibank made a submission saying the default system allowed people not to engage with their savings.

“This means that a high percentage of default members will have little or no understanding of retirement investing and engagement in their financial future. The current arrangements should be replaced with a structure which promotes engagement and builds financial literacy.”

Nigel Tate said about 40% of people were not getting any advice at all on their KiwiSaver accounts.

And he said it was the view of the IFA that as long as a member of the public sought out good financial advice, the provider they chose was almost irrelevant.

When someone first started saving, most of their return came from the Government and employer subsidies, he said. 

“It doesn’t negate the need for picking the right fund but there’s no harm in being in a default fund in the short term.”

Tate said the number of default schemes was a bit high but that could change through the merger of AMP and AXA.

But he said he did not support Kiwibank's suggestion. "I think it would be a retrograde step."

More funding to promote financial literacy would be preferable.

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Comments from our readers

On 4 February 2013 at 10:13 am John Berry said:
Nigel - I agree. Having default status is every KiwiSaver provider's dream - guaranteed inflows. Rather than the government just "giving away" such a valuable source of funds under management(and revenue)to a small number of providers, why not require something in return? Tower apparently have a call center contacting their default members to discuss other options. Perhaps contact and providing education should be mandatory for default providers. Default status does not need to be given away for free - it is the bridgehead in the kiwisaver "land grab" - it has immense value.
On 4 February 2013 at 11:39 am Dirty Harry said:
The self-interest just keeps coming doesn't it? Kiwi-Morgan would hardly be yelling about the default system if they were part of it. The uppity little NZ Post-cashflow-machine has always felt a sense of entitlement to default status due to their kiwi story. But it just sounds like a spoilt brat making another demand on over-accommodating parents.

Here's an idea: offer something new, interesting. The Morgan story had an audience, it engaged and attracted loyal followers. Instead of nurturing the natural fit with the kiwibank story they have silenced it.
On 4 February 2013 at 2:08 pm Andrew Blackler said:
The experience in Australia is that many investors do not pay much attention to their investment strategy or manager until their balance approaches $40k-50k. At that level investors take a much more active interest in understanding whether they are with the right manager or in the right fund. Kiwisaver was never going to address financial literacy overnight, however as investors become more engaged by way of their own investments, they will ultimately seek out more information and advice. Incidentally, the government has made some good steps in creating some uniformity in performance reporting standards which will allow investors to make accurate comparisons between funds in time.
On 6 February 2013 at 7:59 pm Stan Walker said:
@John Berry, yes Tower will actively try to move clients directly, but I think that you will find it is due to a larger fee. Why else would you move someone from a default fund to a conservative one?

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