Too little action for too long: AFA

New Zealand's financial services sector needs more action and less talk to help Kiwis get the best outcomes from their investments, one financial adviser says.

Tuesday, April 30th 2019, 6:00AM 4 Comments

John Cliffe

Authorised financial adviser John Cliffe spoke at the Retirement Policy and Research Centre and Public Policy Institute forum last week.

He said a lack of regulatory action had left many people on track to have less in their KiwiSaver accounts than they should at retirement.

Cliffe headed a group of AFAs who wrote an open letter to Financial Markets Authority chief executive Rob Everett, Finance Minister Grant Robertson, Reserve Bank Governor Adrian Orr and Commerce Minister Kris Faafoi highlighting problems with the KiwiSaver scheme.

He told the forum that the FMA had for too long taken too little action to ensure that default KiwiSaver providers were engaging with those who were automatically enrolled in their funds.

Too many people were stuck in funds that were too conservative for their investment goals.

“Ask yourself how and why did this happen? Conflicted interests. Term deposits for example make up more than 30% of most of the default funds.”

He pointed to data showing small numbers of people making active choices about their default fund investments.

He said the FMA could have done something about that earlier.

“I live in a world of action. So why didn’t the FMA just make some calls? Did the FMA have the power? Yes, they certainly did.”

Cliffe said all but the top three default providers should be stripped of their default status.

He said there was also a major and ignored issue of over-taxation.

Someone who should be on the 17.5% tax rate but was mistakenly on the top rate of 28% would end up overtaxed $109 this year and more next year. Someone who should be on 10.5% would end up paying an extra $181 this year.

Cliffe said it was too hard for members to have their correct tax rates loaded at present. "So not only are all default members automatically taxed at 28% so are all auto enrolled members."

He said, if the nine default KiwiSaver funds could not be properly managed by the FMA, it was questionable how it would cope with hundreds of financial advice providers.

Cliffe said financial education was needed.

“That’s the biggest thing we can do: teach our kids to be cynics [as well being financially literate]."

Tags: FMA KiwiSaver

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Comments from our readers

On 30 April 2019 at 9:01 am NormanStacey said:
John makes excellent points.
I don't know that he should be regarded 'courageous' to put investors interests first, but clearly most Product Providers do not.
C'mon FMA - put investors interests first too.
On 30 April 2019 at 10:50 am Barry Read said:
While I agree more can be done to help KiwiSaver members in default funds, the aim here is a bit off. The FMA doesn't set the rules for KiwiSaver Schemes and engagement, the Government do. The argument above is a bit like asking the police to tell all drivers to buy cars with the best safety features. Not their job.
On 30 April 2019 at 4:54 pm John Milner said:
As one of the advisers that signed the letter mentioned, I have little doubt the FMA would challenge my ability to service clients at a meaningful level, if I reported such high levels of clients. Whether this is financially feasible for KiwiSaver is irrelevant. Hence the reason I don’t work in this area. (Turnover is for vanity, profit is for sanity).
On 30 April 2019 at 9:21 pm JPHale said:
And under the new approach, the work RFA's have been doing to address the basics with clients in a relatively well-structured way, is going to be removed. Current RFA's will need to become qualified and licensed investment advisers just to advise on a fund switch in the client's current providers product, let alone any changing of providers.

Thus making the situation even worse, as AFA's won't or don't do this work by itself because of their costs and lack of returns to pay the bills in this area alone. Which is leaving the institutions that are the problem in the position of managing the problem, akin to the fox managing the hen house.

A significant own goal in the grand scheme of things. Let's continue to pour money into bank term deposits to further fund and drive our low-interest lending and leverage the rampant growth in the property market. A far cry from the original KiwiSaver mantra of invest and grow New Zealand businesses, far from it!

Cynical as it may sound, the government since the GFC, blue and red, have relied on property inflation to maintain GDP above 0%, so they aren't about to take this fuel away and find themselves with a recession on their watch either.

As Barry said the FMA manages what the government has implemented, and they are doing exactly what they have been told to... Which is maintain confidence, security and don't rock the boat too much as that money is helping us pay the bills...

The run on impact of recessionary results is likely to have wider-ranging impacts than the loss of the future opportunity on the money invested. That may apply at goverenment level, cold comfort to the individual without the savings they needed when they retire...

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