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Bank KiwiSaver 'cause for concern'

The FMA is reminding banks that conversations about switching KiwiSaver provider need to be done with customers' interests in mind.

Friday, September 12th 2014, 3:00PM 1 Comment

by Susan Edmunds

The FMA today issued its first Qualifying Financial Entities (QFE) monitoring report, for the period ended June 30. It covers site visits and other monitoring activities conducted at some of the major banks and non-bank entities.

The FMA said it was particularly interested in the selling and provision of class and personalised financial advice by QFE staff, particularly around KiwiSaver.

The monitoring report said the FMA found that banks largely depended on branch managers to ensure that staff were supervised, and a lack of reporting made it hard for senior management to identify performance issues.

It said while the QFEs had AFAs available to help with KiwiSaver sales, very few customers were referred to them or asked for that service.

“Customers need to be made more aware that personalised advice is available to them and can be provided by an AFA within the QFE. Specifically, how that advice is relevant to them as a customer and to their unique financial circumstances. We found instances where QFEs provided investment recommendations to customers on their investment portfolio without taking their existing KiwiSaver investments into consideration. We must stress the importance of including KiwiSaver as a significant element of an investor’s portfolio, when considering retirement planning.”

The FMA said it had received reports of concerning KiwiSaver practices including:

  •  asking customers if they would like to be able to access their KiwiSaver information online alongside other bank account information, without explaining that this will mean the customers must transfer to the bank’s KiwiSaver product
  •  stating that an application for credit (e.g. student loan, credit card, mortgage or other) will be more favourably considered if the customer transfers their KiwiSaver to the bank
  • signing customers up for a credit card, personal loan or other products and providing a KiwiSaver transfer form alongside other documentation for signing, leading to customers inadvertently agreeing to transfer their KiwiSaver to the bank.

“None of these examples place the interests of the customer first. They reflect poorly on the provider’s attitude towards the customer or the product," the FMA said.

Director of compliance Elaine Campbell said the FMA was clear that KiwiSaver was a priority for it. "The way that advice is provided in respect of the sale of the product to consumers is a focus for us as well."

She said one of the issues was  making sure that understanding of KiwiSaver practices, including training, disclosure, incentives and paperwork, was known right through to the highest levels of the QFE.

"They are responsible for ensuring the sales experience provides the best outcome for consumers."

She said the monitoring report highlighted the fact that there were still areas giving the FMA cause for concern. "It'll be a continuing focus for us as we move forward."

It would need to be determined whether the issues were a one-off, for example at a particular branch, or indicative of a wider problem. “We have a particular focus on switching practices to ensure that where a KiwiSaver conversation is brought up by an adviser that is had with the best interests of the consumer in mind. Not just to benefit the product provider but the consumer.”

It was important that consumers understood where the conversation they were having fit on the "advice continuum", she said. "Our view is that when the conversation is initiated by an adviser not a consumer it would be an unusual circumstance if that was not an advice conversation."

An AFA monitoring report was also issued today. We will have full details of that report on Monday.

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Comments from our readers

On 12 September 2014 at 5:20 pm Half Moon Bay Adviser said:
An interesting read! It's about time the FMA realized that allowing larger organizations such as a QFE to have different standards of control and discipline is NOT expressly in the client's best interest. Staff within QFE's have in the main turned into volume junkies, trained in sales NOT true needs analysis & therefore are actually becoming lower skilled than those of us out in the real world!

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