Efforts are under way at the Financial Markets Authority to help address concerns from KiwiSaver providers that are believed to be limiting the advice members receive.
It said the intention of its new draft guidance on KiwiSaver advice, which is out for consultation today, was to encourage advisers and financial firms to help New Zealanders make good decisions about KiwiSaver.
A review last year found only three in 1000 sales or transfers happened with personal advice.
There was also little management reporting available on how providers were helping their customers in other ways, in the absence of personalised advice.
Providers told the FMA that one of the obstacles to giving KiwiSaver customers advice was the guidance FMA had issued in 2012, which they believed to be restrictive.
Liam Mason, the FMA’s director of regulation, said: “We have revised our previous guidance because we want advisers and firms offering KiwiSaver to be more confident that they can have conversations and offer advice within the rules. We are paying special attention to explaining what constitutes class advice because much of what customers want and need to know about KiwiSaver is class advice.”
The guidance notes that customers often want simple, focused advice. “They may not want to pay for advice and may not want to share their personal information. In those situations, there are four main pieces of information and advice that will be useful for every customer, whether they are considering joining KiwiSaver, switching between funds within one KiwiSaver scheme, or transferring between schemes.”
Those pieces of advice are that people should be in KiwiSaver, should chose a contribution rate that suited them and at least gave them the member tax credit each year, should identify the right kind of investment fund and get the tax rate right.
“Our previous approach emphasised that personalised advice should be given only by those advisers who were eligible by law to give it. We have received feedback that that our approach resulted in some people not getting the help they needed, as firms saw it as risky to provide advice.
“We are replacing our earlier guidance to try to change this situation, and to encourage advisers and financial firms to help people make good decisions about KiwiSaver. This guidance updates and clarifies our view of what the different types of advice are, so advisers can be more confident they are within the rules. We pay special attention to explaining class advice, because much of what customers want and need to know about KiwiSaver is class advice.
“While it remains true that many would likely benefit from detailed personalised advice, the more pressing need is for them to have started getting the help they need to make informed decisions about KiwiSaver.”
The guidance also covers the use of incentives to encourage KiwiSaver members to transfer from one provider to another. While the FMA’s overall view is that incentives can be provided, they should not be so attractive, nor offered in such a way that distracts a customer from making a good decision about KiwiSaver.
The guidance also says, for transfers more generally, providers should encourage customers to weigh up the pros and cons of transferring from their existing provider, including giving them information about comparison tools.
It gave examples of information that is not advice, such as explaining what KiwiSaver is, the features of the scheme, and what members would have to do.
Class advice could include questions to establish someone’s age, risk tolerance and savings goals. Advisers could cover things such as “why this KiwiSaver scheme”, switching funds and transferring between providers within class advice.
Personalised advice covers situations where the client would reasonably expect the financial adviser to take into account their particular financial situation or goals.
“Firms have told us their concern that as they cannot control customer perceptions, they cannot be certain whether class advice has moved into being personalised advice. Similarly, advisers have told us that they are particularly concerned when customers volunteer information about their personal financial situation and goals.”
The FMA said there were steps that could be taken to manage customer expectations, including telling them that class advice is useful for people generally within the class identified and asking whether they thought that was fair, and offering to refer them to an adviser who could give personalised advice if necessary.
“We have received feedback that our earlier guidance caused concern that if a customer provides any type of personal information, any advice given would not be class advice. However, our view is that advice is only personalised when it takes into account a person’s financial situation and goals.”
The FMA acknowledges in the guidance that the Government has signalled significant changes to the Financial Advisers Act 2008 (FAA), which will affect the rules for advice on financial services and products including KiwiSaver.
“When the new legislation comes into effect, this guidance will be reviewed and possibly replaced. In the meantime, this guidance recognises there is an opportunity now to remove an identified barrier to New Zealanders getting the help they need to make good decisions about KiwiSaver.”