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Investor confidence drops

Financial advisers may be able to use KiwiSaver to start a wider conversation with investors, the Financial Markets Authority chief says.

Wednesday, May 18th 2016, 12:00PM 1 Comment

by Susan Edmunds

The FMA has released its latest investor confidence survey, which shows while overall confidence in New Zealand's markets fell slightly over the past year, to 56%, there is a large discrepancy between sophisticated investors and those whose KiwiSaver accounts are their first foray into the market.

Confidence fell most among middle income earners, with 59% of respondents earning  $50,000 to $100,000 saying they were confident, down from 66% last year. Despite the market volatility over the past year, the percentage of respondents saying they were confident has increased among those earning $100,000 to $150,000 from 71%-75% over the last year.

Investors with managed funds and unit trust investments were the most positive.

Rob Everett, FMA chief executive, said: “The downturn in market confidence is not surprising given the significant turbulence in financial markets, internationally and at home, over the last 12 months. This measure does seem to be impacted by sentiment in the markets, so we have introduced a new question to find out whether people are confident about the effective regulation of the markets.

“It’s important for properly functioning markets and financial services that people can see the difference between patchy periods of market performance and poor conduct or low standards from providers.”

Everett said there was a problematic lack of engagement among some segments of the population. Some were so intimidated they did nothing, he said.

"The dialogue we are having with [KiwiSaver] providers is 'how do you have these conversations', or when it comes to advisers 'how can someone else have these conversations in a way that helps people break it down to what are the decisions I need to make and how?'"

He said the FMA was interested in whether legislation was creating barriers to those conversations.

Financial advisers were stuck in a difficult position, he said, because most KiwiSaver members' balances were not at a sufficient level where providing advice would be pay off financially.

But he said the KiwiSaver conversation could be an opening to a wider discussion. "People might get to the point of saying KiwiSaver is fine but I don't want all my eggs in one basket and start looking at other investments, life insurance ,managed funds. At what point do those conversations become sufficient for an adviser? It's a fantastic entry route for people into the conversation but I feel for advisers."

Respondents were asked if they had confidence in the FMA and the other frontline regulators including the NZX and the supervisors of managed funds and KiwiSaver. Confidence in regulation is higher when people have investments (63%) and in particular those with managed funds (80%) and shares (75%) were most confident.

Sixty-three per cent of those in KiwiSaver said they were confident in the regulations, 17% less than those with managed funds.

Everett said that understanding people’s attitudes to regulation was part of a successful implementation of the Financial Markets Conduct Act. “This is an important result as we are still in the early stages of an entirely new regime. While the overall score seems a fair assessment of the effective regulation of the markets, it’s encouraging that the scores are higher among those who are aware of the regulator or have investments.

“Whatever the performance in the markets, whether they go up or down, the FMA is most concerned that investors are treated fairly and are fully-informed about the risks, benefits and costs of the investment products they are buying."

Half of those with investments found the materials they received about their most recent investment helpful, this score has dropped from 56% in 2015 to 50% this year.

Awareness of the FMA has remained at four out of 10 respondents saying they had heard of the FMA. Everett said awareness of the FMA needed to be higher than it was.

Tags: FMA

« Stubbs looking to launch new KiwiSaver offerLVR restrictions to be reviewed »

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Comments from our readers

On 18 May 2016 at 12:34 pm interested2 said:
Two quick observations, as these points would likely be controversial if first stated by advisers… The head of the FMA is suggesting ‘financial advice’, particularly with regards to KiwiSaver is a good loss leader for those interested in sales of other products – good or bad.

Secondly, should we be encouraging the FMA to be more deliberate/ transparent with its reporting i.e. if giving specific percentage values about market sentiment metrics, such as 59% down from 66%, or 75% up from 71%, why then do we see that FMA awareness score is static at 4/10 (that could be 37% down from 42% or possibly the reverse).

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