Inside Money: Regulator puts banks on KiwiSaver switch watch

Banks have been warned by the FMA to go easy on KiwiSaver up-selling after complaints about concerning KiwiSaver sales and switching practices. Photo / APN

The Financial Markets Authority (FMA) has officially wagged its finger at banks for switch-hitting on customers.

In the regulator's inaugural report on Qualifying Financial Entities (QFE) - a group of 56 firms that have assumed responsibility for advisers who operate under their respective banners - banks were warned to go easy on the KiwiSaver up-sell.

The QFE Monitoring Report refers to complaints "from various sources about concerning KiwiSaver sales and switching practices".

While the FMA softened its criticism by admitting "these practices may apply to all KiwiSaver providers and not just QFEs", banks were fingered as the major culprits.

Essentially, the regulator spanks the banks for bundling KiwiSaver switches in with other services without fully informing the customer of the consequences.

"[These bank KiwiSaver switching practices] reflect poorly on the provider's attitude towards the customer or the product," the QFE report says. "We encourage KiwiSaver providers to think about the value they can add for customers in relation to their KiwiSaver investments."

Banks have undoubtedly been the winners in the KiwiSaver 'distribution wars', with three of them in the list of top five biggest providers. KiwiBank sits just outside the top five while late entrant BNZ is whizzing up the ranks.

However, the latest KiwiSaver transfer data shows banks aren't having it all their own way. According to my analysis, banks did take out the top four spots by net KiwiSaver transfers (transfers in less transfers out to other schemes) in the year to March 31, 2014.

The main ANZ scheme, even after stripping out the $1.2 billion transferred in from the now-defunct National Bank KiwiSaver, recorded winning net transfers of about $193 million. BNZ, making up for lost time, reported net transfers of $176 million, followed by Kiwi Wealth (the former Gareth Morgan KiwiSaver now owned by KiwiBank) with $60 million and Westpac with $56 million.

(AMP did record net transfers of about $837 million during the period but excluding the merger with former Axa scheme the result would probably have been in the red.)

But there are some surprises: Milford, with net transfers of $53 million rounded out the top five; the original KiwiBank scheme managed to net almost $20 million despite being on death row for the last two years (it is understood the scheme will formally wind up before December).

Even the relatively tiny NZ Funds KiwiSaver achieved higher net transfers (about $11 million) than the country's largest single scheme, ASB, which scraped a gain of only $10 million on huge turnover ($165 million came in as $155 million exited during the period).

As usual default schemes were the biggest losers in the transfer market with Fisher Funds Two (the ex Tower scheme), Mercer and the ANZ Default (formerly known as OnePath) reporting net transfer outflows of $85 million, $70 million and $68 million respectively.

Both ANZ Default and Fisher Two probably diverted transfers to their alternate schemes (although the other Fisher Funds - despite now selling in TSB Bank and credit unions - also reported negative net transfers).