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New Zealand's advice problem

New Zealanders need to realise they need advice, and they are going to have to pay for it, a KiwiSaver panel was told at this year’s Financial Services Council conference.

Monday, September 11th 2017, 6:00AM 4 Comments

AMP general manager in New Zealand Blair Vernon said a key issue after 10 years of the KiwiSaver scheme was making sure New Zealanders got the advice they needed, across all aspects of their lives. They needed to recognise when they lacked skills and seek them from a professional.

“I’m fine with people DIYing but most aren’t, they’re just faking it til they make it and that’s an issue,” he said.

“My view on advice is that we need that way more regularly to save you from yourself. People make bad consumption decisions.

“What’s the point of getting into KiwiSaver and continuing to save but you have no insurance to manage the downside risk in your life? Advice needs to be a broader conversation than KiwiSaver. That’s why I worry that KiwiSaver is dominating the conversation.”

Vernon said there were not enough advisers in the market because financial advice was “not a charity business”.

Too many consumers expected to be able to get advice free, he said.  “We have to find a better way of having that conversation. People spend more on having their hair done than they do on financial advice.”

Claire Matthews, of Massey University, said financial advice was fundamental if New Zealanders were to have comfortable retirements.. “A lot of people start KiwiSaver and they aren’t even sure if they’re in the right fund... but there aren’t enough financial advisers out there. There’s no financial incentive to adviser to cater to that part of the market.”

She said that was a role for providers to pick up.

Ana-Marie Lockyer, general manager of wealth products at ANZ, said advice was important at key stages through KiwiSaver – when they joined, bought a first home, at 40, at 55 and at 65. “That’s when they need help most, to make it last.”

She said there was a tsunami approaching KiwiSaver as an ageing population had increasing demands for their retirement. “Let’s not wait until 50 to start saving for retirement. We need to help people start thinking about saving a little bit for longer.”

Vernon said a lot of the money that was in KiwiSaver had displaced other savings.

A widespread lack of contributions was down to the choices people made about where they spent their money, he said. “A lot of people have chosen not to participate and that’s really sad. They’re saying they don’t have an aspiration for the future... I ask if you’re not in KiwiSaver are you planning to die before 65 - because that’s a reasonable strategy.”

The “elephant in the room” was that people had an unrealistic view of what KiwiSaver should give them in retirement, he said.

“If we aren’t able to bridge that gap there’ll be a whole lot of people who purchase products and services from us and are really unhappy. That’s a huge problem in New Zealand and KiwiSaver is perpetuating it because people think 3% plus 3% equals happy days.”

READ MORE: Are KiwiSaver fees too high?

Tags: KiwiSaver

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Comments from our readers

On 11 September 2017 at 8:29 am Brent Sheather said:
I thought the heading was going to address the “real advice problem”. That problem is “sales” masquerading as advice. AMP and ANZ should not be able to call advice limited to just selling their own high-cost products “advice”. In a proper regulatory regime, vertically integrated producers should be compelled to offer the whole range of products just as non-vertically integrated producers are required to. That’s advice, anything else does not optimize investor outcomes.
On 11 September 2017 at 8:52 am John Milner said:
At an event last year Rob Everettt advised confidence in the markets had risen sharply in the last few years, with the exception of KiwiSaver members. The reference being as a result of the good work of the FMA. When I suggested there could be a correlation with an unattractive KiwiSaver remuneration model for advisers against the mountain of compliance and risk, he said they have looked at this and suggested when clients reached retirement they could then transfer their funds to an advisers care at that point! Although given months to prepare for the event, Mr Everett then had to leave immediately for another engagement without answering my second question; isn't retirement a little late for an adviser to take over? What can I say?
On 11 September 2017 at 9:05 am John Milner said:
I approached the then Minister of Commerce Paul Goldsmith with an offer of a consultation on his retirement. His reply; "WellI I really don't know much about that stuff. The government takes care of all that". Hardly leading by example.
On 11 September 2017 at 9:47 am Dirty Harry said:
Ease up Brent.
This article and the comments from Vernon and Lockyer do a pretty good job of identifying and presenting the issues. Whether or not you agree with their product solutions, which this particular article is not discussing, is another matter.

Even in a VIO there can be value. Not everybody wants the full Advice (capital A) model. And there is definitely no capacity to deliver it if everybody suddenly did. Getting them up and running, even if the thing that gets them there is simply seeing their KS balance on a phone, and encouraging them to contribute, helping them buy houses etc. For many this is their first exposure to saving, investing, taking advice. We can agree that the quality of that, the sales vs advice thing, needs work. But that doesnt change the fact that the general public needs and deserves access to advice in a variety of channels.

You can't just keep saying the same thing on every single story on here that mentions a bank, or KS, or fees. It actually dilutes the strength of you message.

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