KiwiSaver may be tempting for people who are in financial trouble to access their money. Photo/Steven McNicholl.
KiwiSaver may be tempting for people who are in financial trouble to access their money. Photo/Steven McNicholl.
New Zealand's financial market regulator has released a highly critical report on sales and advice practices for the financial services industry, including those selling KiwiSaver.
In its first ever report on the sector the Financial Markets Authority said it had found "inconsistency in the quality and maturity of systems, andthe practices in use across the industry".
The report covers around 34,000 people who work in the industry selling and advising on products from KiwiSaver to mortgages and term deposits ranging from those employed by the banks to specialist authorised financial advisers.
The main issues highlighted by the report include:
• a lack of comprehensive governance systems which resulted in insufficient reporting to senior management and inconsistent attention to managing conflicts of interest • inadequate attention to ensuring customers had access to appropriate information and advice relative to their specific needs and the types of products on offer and; • a lack of comprehensive compliance systems that can provide firms with reassurance that they are addressing all of their regulatory and conduct risks.
The report was based on 47 site visits undertaken by the regulator in the year to June 30.
It also includes findings from a review of 10 KiwiSaver providers.
The report notes that while it did not find any "systematic issues" for KiwiSaver sales and advice the regulator said it was "concerned that consumers are not always receiving the support they require or desire".
KiwiSaver members may not be making decisions based solely on the merits of the scheme on offer. Other considerations, including incentives, may be influencing members to make decisions that are not necessarily in their long-term benefit.
Around half of KiwiSaver sales were transfers between schemes which the FMA said required members to carefully consider the benefits and potential drawbacks of switching.
But it found most providers did not have records of the type of service provided in transfer situations.
"KiwiSaver members may not be making decisions based solely on the merits of the scheme on offer. Other considerations, including incentives, may be influencing members to make decisions that are not necessarily in their long-term benefit," the report noted.
There was also reluctance to provide advice on KiwiSaver with many advisers only selling KiwiSaver on an information-only basis.
Data showed that for every 1000 sales or transfers, only three were recorded as having been sold with personalised advice.
"While advice (class or personalised) may not always be required, the full spectrum of service must be accessible and made available to clients based on their circumstances."
There were 826 complaints recorded by providers during the six month period the FMA reviewed with nearly a quarter related to enrolment.
KiwiSaver withdrawals and transfers also attracted high levels of complaints.
The report noted two providers had a high level of transfers which subsequently stopped. The FMA said it would follow up and monitor switching and retention tactics to ensure members were being treated fairly.
The sales and advice report comes as many firms are either adjusting to or gearing up to meet new standards introduced through the Financial Markets Conduct Act.
We'll be stepping-up our efforts to accelerate the change and to ensure providers are systematically putting the interests and outcomes for consumers at the centre of their processes.
The Financial Advisers Act is also under review.
Liam Mason, director of regulation at the FMA said the Financial Markets Conduct Act brought a new approach to financial services where the focus was on the conduct of providers and the impact that conduct had on customers and the market.
While its monitoring work had indicated a high degree of willingness to meet new obligations Mason said the FMA expected the full adjustment of financial service providers to the expectations of the regulator and the consumer to take a few more years.
"We'll be stepping-up our efforts to accelerate the change and to ensure providers are systematically putting the interests and outcomes for consumers at the centre of their processes," he said.
