KiwiSaver

The Securities Commission has taken a veiled swipe at Huljich Wealth Management in its guidelines for distribution and disclosure released yesterday.

The market regulator wagged its finger over the signing up of KiwiSaver members through door-to-door sales, something that got Huljich in trouble last year, and also stressed the need for disclosure statements to indicate the actual performance of the fund, saying it “regards transactions with related parties on other than arms length terms as questionable behaviour.”

Peter Huljich was forced to step down as managing director and chief investment officer of Huljich Wealth Management after topping up the performance of his funds, which prompted an investigation by the Securities Commission.

The commission’s guidelines also noted company directors “bear the ultimate responsibility for the documents they sign or approve and must ensure that any reliance on third parties is reasonable and justifiable.” Huljich directors Don Brash, who took over as managing director after Peter Huljich stood aside, and John Banks were criticised for failing to question the top-ups to the KiwiSaver funds.

“The commission has become aware of a number of circumstances where KiwiSaver membership has been solicited in an unusual or confusing manger,” chairman Jane Diplock said in a statement. “This type of behaviour is completely unacceptable and damaging to investor confidence.”

The guidelines also called for industry to set a standard to measure investment performance, and will recommend legislation if this is not achieved.

The Investment Savings and Insurance Association supports the guidelines, with chief executive Vance Arkinstall saying the ISI is already working on setting a standard for measurement and disclosure of funds’ performance, and will discuss the outcome with the regulator.

Arkinstall reinforced the commission’s criticism of funds trying to hold on to members looking to swap providers, saying “such action is creating delays which are contrary to the intention, flexibility and choice provided by the KiwiSaver Act.”

 

Default KiwiSaver provider Mercer is says there needs to be an improvement in disclosure requirements with KiwiSaver.

Head of Mercer New Zealand Martin Lewington says the requirement thresholds default schemes have should be across the industry.

He believes what happened with Huljich Wealth Management and its KiwiSaver funds was inevitable and that it has bought the urgency and timeliness of KiwiSaver issues forward.

“The Capital Markets Development Taskforce drew attention to the problem of disclosure and Huljich brought that forward.

“No-one anticipated for KiwiSaver to be so popular and as a result more rigorous and comprehensive requirements are needed across all providers.”

Mercer yesterday released its latest KiwiSaver sentiment survey.

It says that of those New Zealanders who have not joined KiwiSaver, one in four anticipates they will do so in the next 12 months compared to one in seven in 2007. For those still unlikely to join a scheme, lack of affordability was the most common reason.

 Other key findings of the study include:

• Kiwis are reasonably satisfied with KiwiSaver providers; nearly half (49%) said they were either satisfied or very satisfied with their current provider.
• Respondents indicated a strong loyalty to current schemes; very few (5%) anticipated a change in their KiwiSaver provider in 12 months time.
• The main concern Kiwis have about KiwiSaver is the lack of guarantee and specific concern about the future viability of the scheme. Other concerns centered on a lack of understanding of the scheme, poor returns and a preference for greater control over personal finances.
• Kiwis predict they will need between $2,000-$3,000 per month (including NZ Super and after tax) in retirement.
• The introduction of a 2% contribution level has proven popular; 29% indicated they either plan to make or already make contributions at the 2% level (the proportion of these as a result of default selection is not known), while 46% plan to do so at the 4% level.
• Just over half (55%) actively chose their own provider, while two in five (42%) either let the Inland Revenue Department or their employer make the decision on their behalf.
• Kiwis demonstrated a reasonable level of knowledge of the KiwiSaver scheme, however respondents showed uncertainty around government fee subsidies and some believed that respondents could belong to more than one KiwiSaver fund.

 

Trustees respond to teh government’s comments over their role in supervising KiwiSaver schemes.

“It’s important that trustees are fit for purpose, professional and independent”, Trustee Corporations Association chairman Clynton Hardy says.

“The bottom line is that close to $5 billion, and rising, is invested in KiwiSaver schemes.

“A KiwiSaver trustee’s job is no different from any other corporate trustee role. They are there to supervise fund managers and make sure investors are protected, bearing in mind the long term nature of KiwiSaver schemes.

“KiwiSaver funds are just like public money invested in debentures, bonds, retirement village homes, managed funds or other kinds of non-bank deposits. So they should be subject to the same protection and rules”, he said.

The Securities Trustees and Statutory Supervisors Bill is due for its first reading in Parliament shortly. It creates much stronger regulatory oversight of corporate trustees.

“There will be much tougher hurdles to become a trustee, and once you have been given a licence to operate, higher standards of accountability.

“Making all the KiwiSaver trustees subject to this same regime would give everyone in a scheme more confidence”, Hardy said.

This is an edited version of a TCA press release

Concerns over KiwiSaver fund management have led to the government fast tracking work to ensure the integrity of KiwiSaver is maintained for the 1.3 million people and $4.88 billion of their money invested in the scheme.

Minister of Commerce Simon Power says in recent weeks there has been growing concern regarding the regulation of KiwiSaver schemes.

Huljich Wealth Management brought the spotlight on KiwiSaver account management after it failed to disclose that its then-managing director Peter Huljich had injected cash into the funds because it had not performed well.

Huljich said he felt morally responsible for the investment decisions, but others said it was to give a false impression about the funds’ performance. The Securities Commission is investigating.

Australian investment research company Morningstar Australasia has also warned KiwiSaver investors to look closely at their providers, as there was a very poor disclosure regime in New Zealand.

Power says mum and dad investors must have confidence that their money is being well managed.

“The Government indicated last month it supports recommendations from the Capital Market Development Taskforce for additional regulation of managed funds, including KiwiSaver.

“We were intending to make changes in this area as part of the current review of the Securities Act. However, in light of recent developments, I have asked my officials to fast-track this work to ensure investor confidence is maintained.”

Power has asked officials to report to him within three to four weeks on whether:

• The monitoring and reporting regime for default funds should be extended to all KiwiSaver funds. This would require detailed quarterly reporting to an expert monitoring panel and require that one of the trustees of KiwiSaver schemes be a trustee corporation, rather than just an independent trustee, as at present.
• KiwiSaver funds should be required to regularly report to investors and the regulator on the returns, fees and assets of each fund in a consistent and comparable manner. At present, the only requirement for non-default schemes is for annual returns, and I am advised these are not prepared in a manner which allows for easy comparison between schemes.
• To increase the ability of the regulator to supervise the trustees of KiwiSaver schemes and hold them accountable for fulfilling their obligations.
• Further powers for enforcement by regulators are necessary.