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KiwiSaver: Advisers' saviour, or a lot of work for little gain?

KiwiSaver may have played a key part in saving an ailing advice industry, claims one industry commentator. But another says it may give advisers false hope of big money in the future.

Monday, July 3rd 2017, 6:00AM 2 Comments

by Susan Edmunds

Ten years on from the introduction of the scheme, most industry commentators said it had been a positive development for financial advisers.

David Boyle, who is now at the Commission for Financial Capability but was working as head of KiwiSaver distribution at ING when the scheme launched, said his team spent a lot of time upskilling advisers at the beginning.

If the retirement savings scheme had not entered the market when it had, the outlook for advisers could have been quite different, he said.

“Before KiwiSaver managed funds were looking pretty dire. We went through bad times through the credit crunch but then KiwiSaver came on and it saved the managed fund industry. It was a door for advisers to build a customer base to get them started.”

He said there was now a group of advisers who had started up relationships with employers and taken on their employees as clients. They were able to build a good core business from that work, he said.

“A good number of advisers looked at is as a long-term opportunity and a good way to get started.”

He said it was true that most advisers did not make much money from advising on the scheme yet.

But he said as balances grew and more people reached the stage where they wanted to get an income from it, there would be more need for advice. It was a good “door-opener” to introduce people to the concept of contributing small amounts over time to a growing savings pot, he said.

Fred Dodds, chief executive of the IFA, agreed. “I do think KiwiSaver has been good for those advisers who have been prepared to do the work.”

He said his first encounter with KiwiSaver was while working with Tower, which was an early default provider.

He said whether advisers were working in insurance or investment, it made sense to have KiwiSaver as part of the conversation.

“Why on earth would you not have them as a KiwiSaver client? It’s a locked-in financial services product that will live with people for decades. Forget the trail on the money, that might vanish as years go down the track, but it’s one of the main contact points [to check in regularly with clients] how good is that?”

Rod Severn, chief executive of the PAA, agreed KiwiSaver was rewarding to advisers as part of an overall proposition.  

He said every adviser who was capable of offering financial advice on KiwiSaver should be able to do so.

But adviser Liz Koh was less sure. She said a trail commission of 0.2% would not pay much to the advisers who dealt with it, and it required a lot of upfront work to set people up with the right fund.

She said advisers who were hoping to put in hard work now for a payoff in future might be disappointed. Many people opted to leave their money in KiwiSaver when they retired, she said.

"There are some advisers who say ‘take your money out and give it to me to invest’, so they can make fees out of them but I have an ethical problem with that. Some people, especially if their balances are small, are better to leave it in KiwiSaver.”

Tags: KiwiSaver

« KiwiSaver could better serve low-income earners: AMPANZ launches scheme to help retain KiwiSaver clients »

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Comments from our readers

On 3 July 2017 at 10:54 am Brent Sheather said:
Interesting story - particularly Liz Koh’s comments. Yes there is a potential ethical problem about telling someone to take their money out of KiwiSaver but what about the ethical problem of just recommending KiwiSaver funds that pay trail commission? The evidence shows that KiwiSaver products which pay trail commission have much higher fees than those that do not. How can this be putting clients’ interests first? Of course it isn’t, in any country other than NZ.
On 4 July 2017 at 3:29 pm Broker said:
Agree with Brent. As an RFA (insurance only) I've been reluctant to push the one or two Kiwisaver providers that deal with advisers and pay trail under this weird concept called class advice. Agree it's probably a good door opener to new clients if you can be bothered but not sure if it's really the right thing to do.

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