FMA to tackle Kiwi lack of investment know-how

Simone Robbers, director of primary markets and investor resources at the Financial Markets Authority says it has a three year strategy for improving investors' financial capability.

People who are in KiwiSaver and those over the age of 50 are to be the focus of a new strategy put together by New Zealand's investment watchdog to help people make better investment decisions.

The Financial Markets Authority released its Investor Capability Strategy on Friday at the summit for Financial Capability.

You can read it here.

The FMA says its needs to have a strategy because research shows Kiwis do not have a good understanding of basic investment concepts such as risk versus return and diversification - spreading their money around different types of investments.

It also says that the growth of KiwiSaver is exposing more people to financial markets and more people are buying complex products and using technology-based financial services.

The FMA said it was concerned few people sought out professional advice and that as the population ages professional advice will become more important.

It also said investors were increasingly looking for higher yields or higher returns on their investments without understanding the risks involved.

In its strategy outline the regulator said it would target a group it calls 'limited investors' - people who are often older than non-investors and earn more, are in KiwiSaver and own their own home but may not get advice.

It estimates around 50 to 65 per cent of the population could fit into this category.

A second focus will be on what it calls "moderate investors" who make up 10 to 15 per cent of the population.

Those people are likely to be older than limited investors, have higher incomes, invest in products outside of KiwiSaver but may not use a financial adviser.

It is taking a more hands off approach to those it labels "habitual investors".

This group is estimated to make up just 5 per cent of the population and is likely to have a high income and or assets, invest in complex problems and have a financial adviser.

Simone Robbers, the FMA's director of primary markets and investor resources, said it would aim to develop resources and partner up with the Commission for Financial Capability, industry and other stakeholders to help people make more informed judgments and effective decisions about their investments.

"Through analysis of local and international research, trends, and market data, as well as seeking input from industry, consumer and advisory groups and education providers, we've been able to build a good picture of the people, product types and problems we think we should target," said Robbers.

Robbers said KiwiSaver provided it with a good platform because for many people it was the only financial product they had outside of bank products.

International research had also shown that once people had a certain amount of money in their retirement saving accounts they started to pay more attention to it.

Robbers said getting messages out to savers was a challenge but it planned to work through providers as well as some direct work with consumers through Money Week.

It plans to release guidance on how default providers can undertake financial education, when it is appropriate to use incentives like prize draws and on using the same terminology.

At the moment providers can call their KiwiSaver funds whatever they want but the FMA wants a "conservative" name to mean the same thing across all providers.

The regulator is also looking at how KiwiSaver providers present their quarterly and annual statements to their members and wants them to test how effective they are.

"They are spending millions on providing them but we would like to see them testing it as well."

Robbers said while the strategy was a three year plan she would be looking to review it before then.

"We will be carrying out surveys. But we are under no illusion that this area is very hard to evaluate.

"It's a slow burn in a lot of respects."