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The Financial Markets Authority has released its latest KiwiSaver report. Director of regulation Liam Mason said even small amounts of advice made a difference to investors’ engagement with the scheme, but AFAs were still unlikely to get involved.
He said that was probably because the numbers did not stack up - providers that pay trail only pay between 0.15 per cent and 0.25 per cent of the client's balance, per year.
Adviser Stephen O’Connor said it was hard for advisers to charge KiwiSaver clients an appropriate rate. “It takes time, you are adding value certainly but to turn around and charge for that time is quite difficult – a lot of clients will not be in a position to pay or may not be prepared to pay.”
He said KiwiSaver was often offered as an add-on service to existing clients.
“It’s something that’s almost done as a pro bono. That’s for established adviser, for those who are starting up it would be a bit more difficult. It’s the proverbial question of how do you advise the mass market. It’s one of those things that’s always been an issue, they are the ones that can benefit the most from financial advice but they’re the ones who can’t afford to pay.”
Simplicity founder Sam Stubbs said it would take more money to get a larger number of advisers interested. Most would look for solid trail commission and the ability to “stick a multiplier” on the business and sell it in future.
“Unless the AFA is fee-based but then the asset has to get large enough. The average balance is $17,000 so it’s still not sufficient. It will take a while.”
Simplicity would lobby for the removal of trail commissions on KiwiSaver, he said. “It’s a very perverse incentive because you’re loyal to the person who pays you.”
Some are making it work: Adviser Camilla Gribble, of IKONIK, a recent award-winner at the Financial Advice NZ conference, said her business offered KiwiSaver education services, which were popular and then led on to other referrals.
But she said, even just the KiwiSaver trail was not terrible, especially if an adviser had a volume of clients.
The FMA said as part of its report that it would monitor fees closely this year, including examining the question of what was “reasonable” in the KiwiSaver context.
The average member balance was up 14.4 per cent while the average investment management fee paid was up 19.3 per cent.
Mason noted that the FMA asked last year why fees had not reduced as a percentage as FUM grew.
O’Connor said it was fair to question why economies of scale had not brought fees down. “It’s a legitimate question.”
Adviser Nigel Tate said that was unremarkable.
“Investors are doing far better in actively chosen funds as opposed to default funds and as a consequence the fees they are paying have increased. When looking at the different after fees returns between the groups these fees look like money well spent. Or in short, a focus on higher net returns is better than focusing on lower fees.
“I would be concerned if the FMA where to in any way suggest the fees are too high as, as a percentage of FUM they are very realistic in my view.”
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If the industry and the regulator agree that advice is important to the KiwiSaver investment process, then they need to make it financially viable for advisers to give that advice.
Rather than removing trail commissions, perhaps they need to be standardised as well as changed into an adviser fee. The difference between a trail and an adviser fee being that advisers will not get paid unless they can demonstrate that they have given advice to the client in question.