New Zealanders need advice from financial advisers to improve complex investment and retirement outcomes but face an enormous obstacle - a lack of trust, says KPMG's Head of Financial Services, John Kensington.
Hard on the heels of his recent contention that the average New Zealander is financially illiterate and naïve, Kensington says the financial advice industry is the answer to that naiveté but has to regain investors' trust to be able to apply it.
"If that trust is lost, it is very hard to re-build it," says Kensington. "It is most important financial advisers demonstrate integrity when providing advice to clients; being open and honest about fees and clearly showing the client they genuinely want to understand the client's risk profile and needs and match products to those needs."
The aftermath of the global financial crisis and the collapse of finance companies in New Zealand led to public confidence in funds managers, financial advisers, stockbrokers and finance companies dwindling to an all-time low, according to surveys done in 2010 when about 200,000 mum-and-dad investors were contemplating losses of up to $4 billion from poor investments and fraud.
That drove an investor flight to quality, into the arms of banks and other dead-cert, high security but low return investments. Little has changed in terms of perception although KiwiSaver sprang out of the need to help New Zealanders save for their retirement and is "a game changer", according to Kensington.
As it grows - there are now two million people in KiwiSaver and funds have grown from $954 million in 2008 to about $30 billion at June 30 - so will the spin-offs for the funds management industry. Demand for good advice will grow as more and more New Zealanders turn 65 and want to know what to do with their KiwiSaver funds.
But the financial advice industry has a lot of work to do to mend damaged fences from the GFC and the perception their advice may not be trustworthy.
ANZ Wealth managing director John Body, writing in KPMG's report Investing In The Future earlier this year said a 2013 survey found only 15 per cent of people had consulted a financial adviser in the past year - a figure which hadn't really moved since then.
"If we look at the two million-plus members of KiwiSaver, 1.95 million of them haven't used an adviser."
Kensington says the industry faces a vicious circle - people who use advisers usually have confidence in them. But others won't use an adviser if they don't trust them, so do not get an opportunity to think more highly of them.
"Financial advice is very much in limbo, almost teetering. People don't want to pay for advice," says Kensington. "Advisers are having to become more independent but, if we don't pay them commission, they won't work for nothing."
The establishment of the Financial Markets Authority, the re-writing of the Security Legislation and the passing of the Financial Markets Conduct Act all dragged New Zealand up to a level regulatory field with the rest of the world. The FMA will become more active in its efforts to protect the investor and building a transparent and open investment market - so any financial services that did not measure up to the new regulatory climate would just maintain or increase that distrust.
Mis-selling of financial products and inadequate disclosure of fees are two examples of further potential disillusionment with the financial advice industry, says Kensington.
The industry was also facing rapid technology and disruptive change, something else which could affect public confidence in advisers - like "robo-advice".
These "robot" advisers can already be found online, giving investors cheap, fast and reliable information - from instantly tailoring an investment portfolio to tax affairs, debts and financial planning. Some suggest they will change the whole investment landscape by making many or even most financial advisers redundant.
They are essentially algorithms used by wealth management services to suggest investments based on customers' answers to a questionnaire or similar information-gathering methods. However, just as the travel agent was supposed to be a threatened species with the advent of online booking, financial advisers face similar challenges and can differentiate themselves with the quality of their service, adding far more value than a stark online transaction.
"Financial advisers need to genuinely try and understand their client's position - and that might mean there is no change; they don't sell them anything," says Kensington. "They need to understand how much risk the client wants to take, what they need to do if, for example, they want low risk and lower returns - not just selling them something to make a sale.
"They have to show a willingness to understand the risk equation and tailor an appropriate product. If they do that, with hundreds of thousands of Kiwis who will reach 65 and realise that even KiwiSaver may not have delivered the kind of retirement they want, there is a real opportunity not only to regain that trust but to lead the way in developing an investment culture in New Zealand prevalent in so many other countries around the world."