FMA consults on KiwiSaver advice

The Financial Markets Authority wants more people to be given advice when it comes to KiwiSaver decisions. Photo/Hagen Hopkins.

Banks and other KiwiSaver providers are being encouraged to be more proactive around giving KiwiSaver advice to the public through a new guidance document.

The Financial Markets Authority has released a draft version of a guidance note on KiwiSaver advice in the wake of research which found just 3 in 1000 people were receiving personalised advice when they sign up or switch KiwiSaver funds.

There was also little management reporting available on how providers were helping their customers in other ways, in the absence of personalised advice.

Liam Mason, director of regulation at the FMA, said when it asked the industry why more advice was not being given many said existing guidance from the regulator was one of the barriers.

Mason said when it sent out that guidance in 2012 it was concerned about stopping people who were not qualified from giving the wrong advice.

But as a consequence many firms had decided it was too risky and it was better not to give any advice at all.

The new document encourages more provision of information-only and class advice which does not require advisers to know a person's individual financial circumstances.

"What we are wanting to achieve with this is providing information on how they can safely give class advice."

Class advice is based around what a person of a certain age or situation should do rather than based on their individual financial situation.

Mason said it wanted to see providers taking the opportunity when people switched schemes to help them select the right fund and ensure they were on the right tax rate as those decisions could have a big impact on their retirement savings.

"That didn't come through in the existing guidance. It is a change in our approach."

Asked if the change could see more people who were not qualified giving personalised financial advice Mason said it was prepared to take that risk.

"Which is the worse evil - someone occasionally giving personalised advice when they are not meant to or where we are at the moment where people are getting no advice? That is a bigger problem to tackle."

The consultation period for the draft closes on December 16 and the final guidance note will be released before March next year.

Mason said it hoped to see an improvement from providers as early as next year as the changes were designed to be put in place without there needing to be massive system changes.

Once the guidance note was released Mason said it would be putting out more information on what sort of advice consumers could expect when they go into their bank or switch or sign up with a new KiwiSaver provider.

The guidance also covers the use of incentives to encourage KiwiSaver members to transfer from one provider to another.

The FMA's view is that while incentives can be provided, they should not be so attractive, nor offered in such a way (for example, with a time limit), that distracts a customer from making a good decision about KiwiSaver.

Four main pieces of KiwiSaver advice everyone should get
•Be in KiwiSaver - joining is one the most important decisions
•Contribute - choose a contribution rate that suits you and at least enough to receive the member tax credit
• The right fund - identify the right kind of investment fund
•Tell the scheme your correct tax rate

Read the full report here: