Don’t dismiss KiwiSaver, advisers told

Advisers are being urged to think about KiwiSaver advice as a way to capture clients for the future.

While KiwiSaver balances are growing, many advisers still regard the superannuation savings scheme as more trouble than it is worth.

Commissions range between about 0.15% and 0.25% of the client’s balance. The average balance is about $12,000.

But Richard James, chief executive of NZ Funds, said advisers could use KiwiSaver as a first step to a long-term relationship.

Advisers who worked with high income earners might find KiwiSaver was their only asset at present, but in the future that would change.

“I don’t think you should look at clients through a product lens but should look through a relationship lens,” he said.

“If you are a non-institutionally affiliated adviser it’s important to build a relationship with potential clients as early on in their wealth accumulation phase as you possibly can. It’s so much more difficult to build a relationship later on when they have already accumulated substantial wealth and have relationships in place. The banks will capture them, and independent advisers never will.”

Some advisers, such as Bill Raynel, of Investment Solutions Northland, are taking that longer-term view.

He said while he would only collect 0.2% of the balance, over hundreds of clients it would eventually add up. “It’s not a big earner. There is a lot of work involved and just as much compliance required for KiwiSaver as a large portfolio.”

But he said he made a conscious decision to focus on KiwiSaver from its start because the global financial crisis seemed to wipe out the next generation of lump sum investors coming through, who would traditionally have formed his client base.

“I saw a complete and utter lack of trust and confidence in the industry,” he said. “I didn’t know how long it would take to recover. KiwiSaver was something that people would be comfortable with. I’m using it to rebuild my client base across the age ranges instead of concentrating on older people with lump sums.”

He said if he could attract clients for a lifetime of advice, that would add longevity and value for the business over time.

Helping clients with Australian superannuation transfers had been particularly successful and was bringing in significant numbers of new clients, he said.

James said the key would be to attract the right type of client.  If someone could only ever manage the minimum contribution to KiwiSaver, they might not be worth the investment. “If the client can save substantially into KiwiSaver or beyond KiwiSaver, their wealth picture is broader and more complex. Those are the clients who are absolutely worth starting that relationship with, even if it’s only around KiwISaver initially.”

KiwiSaver advice sparks complaints

Thirteen customers have complained about bank KiwiSaver sales and advice processes over the past year, the Banking Ombudsman says.

The dispute resolution scheme has released its annual report, which shows it received 2458 inquiries in the year, up 2.6 per cent on the year before. Those inquiries led to 568 complaints, down 1.4 per cent. From there, 259 disputes were received, down 4.1 per cent.

A dispute is triggered when a complaint referred on by the Banking Ombudsman cannot be resolved by the banks.

Service-related issues were the biggest underlying cause of inquiries, complaints and disputes. This included things such as the failure of bank staff to act as instructed and concerns about debt collection.

Break fees on mortgages were also a cause of complaints, as were declined insurance claims.

Ombudsman Nicola Sladden said there were a number of complaints related to decisions about allowing early withdrawals from KiwiSaver.

But other bank customers complained about the quality of information that was provided when they switched funds or providers.

“We had 13 cases last year and some related to transfer of pension from Australia, and others being signed up to KiwiSaver without full knowledge or understanding the implications.”

She said the Financial Markets Authority’s guidance should help.

The FMA has indicated that it is aware that some banks are struggling with how to offer more than printed information on KiwiSaver within the constraints of the Financial Advisers Act, and will offer them more assistance to help them comply.

Banks told Good Returns it was sometimes hard to offer personalized advice within the confines of a QFE structure.

“All financial service providers are committed to improving the quality, simplicity and clarity of the information provided to customers and that’s something we would certainly support,” Sladden said.

She said the 13 complaints was not a noticeable increase from earlier years.

KiwiSaver risk reward just 2.1%

KiwiSaver members in conservative funds have received returns just 2.1% per year less than those who took on extra risk in a growth fund over the past eight years.

That is the finding of Melville Jessup Weaver’s (MJW) latest investment survey, which showed the median annualised return from growth funds was 8.2%, compared to 6.1% for conservative ones.

“[This is] perhaps less than one might have expected at the outset,” it said.

MJW actuary Ben Trollip said over the past five years there had been more difference – growth funds had returned more than 12% per year compared to 6.8% for conservative.  Returns from growth assets over that period have been particularly strong.

Trollip said he would expect 2% difference to be “about right” in future years. But that should not deter people with a longer investing timeline from taking more risk, he said. “Even a difference of 2% per year is going to add up. If you have a longer time horizon and can weather some volatility a more aggressive strategy makes sense.”

He said it was also important to consider the difference between funds within each category.

The best performing fund over the most recent quarter and year was Milford Active Growth, returning 5.9% and 15.2% net of fees respectively. BNZ has had good results with its growth fund third this quarter while its balanced and moderate funds each came first in their respective categories.

“There’s a wide dispersion of returns within each category, it shows it’s important not only which strategy you choose but which provider you go with.”

Banks tackle KiwiSaver advice question

Banks are hoping more guidance from the Financial Markets Authority will make it easier for them to advise their clients on switching between KiwiSaver funds and providers.

In the FMA’s KiwiSaver report this month, it said there had been feedback from some providers that its KiwiSaver sales and advice guidance was getting in the way of members receiving the help they needed to make decisions.

Some said that the guidance invited a conservative interpretation of how they should engage with members, particularly on changing funds, and had led them to prefer to focus on written, information-only advice.

The FMA has noted that class advice and information-only services, such as paper-based information, do not tend to change investor behaviour.

Sharon McKay, manager of wealth strategy and product at BNZ, said it was a complicated area. She said when KiwiSaver launched, there was no Financial Advisers Act in place and the landscape was quite different.

But the FAA introduced the idea of class versus personalised advice and had constrained the ability of bank staff to engage on the product.

“A QFE can give personalised advice but it still held to the same level of accountability and qualification as a financial adviser,” she said. “It’s difficult in a QFE sense to meet those obligations.”

She said most KiwiSaver conversations were offered as class advice but it was difficult, when staff were having those discussions, to draw the line between class and personalised advice.

It’s phenomenally hard for a client to understand, how do they distinguish what they’ve received. It’s not clear whether they’re getting information, class advice or personalised advice.

“How do you help staff understand where the line is and make sure they don’t breach their obligations by crossing that line? It’s so easy to do. Then there’s the public perception – they don’t even know there is a line.”

The class advice process would include directing clients to a risk profiling tool but often they did not take as risky as investment as they should even after completing that assessment, she said, because they did not have the risk appetite.

McKay said there needed to be more clarity on what advice was and more scope for limited advice.  The ability to offer roboadvice, which is coming as part of the FAA review, would be “hugely beneficial”. “There are 2.4 million people in KiwISaver, you’re never going to get around them all face-to-face or on a personalised level.”

Ana-Marie Lockyer, general manager of wealth products and marketing at ANZ, said the industry had matured in its understanding of how it could provide information to KiwiSaver members within the constraints of the rules. 

She said lots of members indicated they wanted information and ideas to help them make decisions, rather than specific recommendations.
Half of ANZ’s members had said they wanted more free, digital financial advice, she said.

ANZ would try to speak to customers as they joined, she said, when accurate contact information was available. But she said with a growing back book it was difficult to talk to them all.
She said ANZ would rely on a degree of class advice, but also had access to AFAs to offer specialised advice when required.

McKay said the 2010 guidance note on KiwiSaver sales and advice was helpful but did not go far enough because not enough thought had been given to how it would interface with the FAA legislation.

The FMA has said it is reviewing its guidance and will update it soon.