There are around 2.5 million New Zealanders using KiwiSaver to build their retirement funds, with collective earnings of $3 billion by April last year. A staggering $2.5 billion has been switched from one provider to another – often without good advice.
In its last Strategic Risk Outlook, the Financial Markets Authority (FMA) expressed concern that banks and other providers were “switching” customer’s KiwiSaver funds – and selling clients products which they didn’t need – and in some cases giving misleading advice.
In the last year, little has changed. At our practice, we surveyed clients who had switched from the KiwiSaver providers we recommended to KiwiSaver schemes run by banks. We found that none of them had received any financial advice before making the decision – one person was not even aware they had been switched!
According to our survey, most banks had told clients it would be easier to view their KiwiSaver fund online if it were shifted, and one bank was even offering Fly Buys points as an incentive for the change.
I find this staggering, considering the importance of the underlying assets at stake here for the client. There was no consideration given to risk, or fees, or what may be lost for the client. Most of the fund switches were carried out with bank tellers who have no understanding of the implications for their customer.
I recently had lunch with a colleague, a lawyer specialising in investment law. He told me two of his staff had gone to the bank for mortgage updates and found later that their KiwiSaver had been moved to the bank. One of his staff asked for an investment statement, which was not given. No advice was provided and nothing signed. Yet days later, he received advice that his KiwiSaver had been moved to the bank. Is this right?
I have written to the FMA on this matter, and have been thanked for my input. But still the banks are gouging out business at the client’s expense, and in full disregard for due practice.
There needs to be clearer information on this matter, and a distinction made between what an Authorised Financial Adviser (AFA) can and cannot do and what a bank teller or adviser of a Qualified Financial Entity (QFE) can and cannot do. Most people may not even have heard the terms, let alone know the difference between the two, and can be easily misled.
As an AFA, I am required to give written advice on this matter to my clients. The banks, through tellers and other QFE advisers, appear to be able to operate with impunity to the merits of giving sound advice.
It is the FMA’s responsibility to ensure customers’ rights are protected in this area.
Unfortunately, to my knowledge, they are responding, but slowly to a worrying trend.