The growing amounts in people's KiwiSaver funds mean they ought to be asking questions about who is managing that money and what they are doing with it
As a KiwiSaver scheme comes under investigation by the investment watchdog for the first time, questions are being raised about the risks involved in the Government-backed retirement savings scheme.
Yesterday the Securities Commission said it was looking into unusual transactions undertaken by Huljich Wealth Management - a new player in the fund management industry which has already attracted 70,000 investors.
While it appears no money has been lost on behalf of investors - in fact they have benefited from the deals - the moves have raised questions about transparency and marketing methods.
Some have taken it further, suggesting that unless something is done to crack down on any who break the rules early on the sector could face a blow-up not too dissimilar to the collapse of the finance companies.
Economist Gareth Morgan, who heads up his own KiwiSaver scheme, says New Zealanders need to realise that KiwiSaver, just like any other investment, has its risks and is not Government guaranteed.
"There is no government guarantee, nor should there be."
KiwiSaver investment performances can go down as well as up and there is no guarantee of how much money an investor will end up with when they take the money out on retirement.
Just like finance companies, there is the potential for providers to mislead the public over their investment performance, provide no transparency over where money is being invested and concentrate the investment in too few assets or related party investments.
Just like the finance company sector, KiwiSaver schemes have been set up by both small and large companies.
The schemes are monitored by some of the same trustees that monitored finance companies and are audited by some of the same auditors.
But unlike finance companies, they have been set up under the close eye of the Government with the six default schemes going though an even more rigorous approval process.
The providers must report regularly to the Ministry of Economic Development and are also under the watchful eye of Government Actuary David Benison, who oversees all superannuation schemes.
ING head of distribution David Boyle says unlike finance companies, KiwiSavers aren't investing directly into a company.
The money is held in a trust and then invested into assets like shares, cash and fixed interest products.
If that company - the provider - goes under then the money should be protected in the trust and if the provider decides it no longer wants to be a KiwiSaver provider, investors can transfer to another scheme or the Inland Revenue can assign them to a default scheme.
This has already happened in the case of two scheme closures last year.
But despite the extra supervision, Tower head of investment Sam Stubbs reckons it could just be a matter of time before a KiwiSaver provider strikes trouble.
"At some stage there will be a KiwiSaver provider that blows up.
"The big problem with KiwiSaver is that people believe it is automatically safer."
But just because it is a Government savings scheme doesn't mean people can opt out of taking responsibility for making decisions, he says.
Stubbs says people need to look at who they are investing with as well as whether the fund matches what they want.
"It's beholden on the investor to be careful of who they buy from."
KiwiSaver has only been going for two and half years and but already the industry has seen some aggressive sales tactics.
The Securities Commission is still investigating complaints made to the Inland Revenue about illegal house to house selling, more than six months after it was first reported.
The Government Actuary has also warned providers about using standover tactics to stop people from changing schemes.
KiwiSaver providers met on Wednesday to talk about the transfer problems and consensus was reached between them that it would be okay for the existing provider to contact a person who had already signed up to switch to another provider.
This could see investors caught in the middle of a tug-of-war between high pressure salespeople.
Commentator Brian Gaynor, who also oversees a KiwiSaver fund through his business Milford Asset Management, says KiwiSaver is a totally different ball game to finance companies but a big part of the problem is a lack of standardisation in the industry.
"There hasn't been standards set that have been approved across the board."
At the moment there is no standard way to report performance or fees or how to put together annual statements.
"When newcomers come in, sometimes through naivety or sometimes because they are trying to boost their performance, they do things that are not the norm. But because we haven't set standards then we get a situation where everybody does things their own way."
Take fees. Gaynor says many providers don't properly disclose their fees and it's not easy for the average punter to compare the providers because some give a total fee and others split it out into different functions and only talk about one main fee. "Unless you are experienced with it, you won't be able to work that out," says Gaynor.
The Retirement Commission widely criticised the industry when it put together its fee comparison calculator and said some providers had up to 10 different types of fees.
Gaynor says when one company starts to push the boundaries and there are no repercussions, it allows others to also consider it.
"If they see Huljich getting away with it they think why shouldn't we do that as well? We could potentially have some problems unless they start tightening it up."
Morgan says much more could be done to protect investors by regulators such as the Securities Commission.
"We've had enough dishonesty in the financial sector, it is way overdue for regulators to act decisively and fast on these types of issues." Morgan says a regulator that is "semi-comatose" is a major risk to KiwiSaver, which now has more than 1.3 million New Zealanders signed up.
"Let's take the status quo - they essentially wait for a disaster to occur with a financial product before they even think about taking action. They are a horse and dray ambulance at the bottom of the cliff.
"We need a far more pre-emptive regulator that is an effective guardrail at the top of the cliff - that actually acts at the mere sniff of bad behaviour by providers."
A new single markets regulator was one of the proposals to emerge out of the Capital Markets Development Taskforce and the Government has given its support for the idea.
But even if it gets the go-ahead it is still another 18 months before it is likely to be implemented.
AMP head of marketing Blair Vernon says it's a good time for all savers to raise questions around the risks to KiwiSaver because the growing amounts in people's KiwiSaver funds mean they ought to be asking questions about who is managing that money and what they are doing with it.
