Liam Dann: Get the little things right to avoid a big mess

Should KiwiSavers be concerned about their money?

Simple question - easy answer. Yes, of course they should. Anyone who thinks they can invest their money and forget about it is living in a fantasy land.

But unfortunately that appears to be what is happening. This week, the Investment Savings and Insurance Association said there could be 200,000 KiwiSavers who don't even know who their default provider is.

That level of investor ignorance makes finance company debenture holders look well informed.

The KiwiSaver scheme, for all its many merits, is drawing unsophisticated investors in to managed funds, and unless it is backed by efforts to raise financial literacy, and by strong and active regulators, things will get ugly.

If investors aren't even paying attention to who has their money what chance do they have of assessing the risk they are taking with their savings?

For now, most are in medium risk default funds but as competition hots up, the risk of them being lured in to more risky products by aggressive advertising grows.

The concern about regulation of KiwiSaver has had plenty of focus this week in part because of discussion about some transactions made by Huljich Wealth Management.

It would be wrong to make that fund a scapegoat for the broader problems that the industry faces.

If we take managing director Peter Huljich at face value - and there is no reason not to - he has made an error of judgment. No investors in his funds have lost money.

The way Huljich and director John Banks see it, they were required to disclose certain transactions. They didn't, they are sorry, and now they have.

But others in the managed fund industry don't see it that way. They are concerned that this kind of sloppiness is damaging to the sector and needs to be brought to the public's attention.

Banks yesterday claimed he had nothing to do with the day-to-day running of Huljich Wealth Management and was not an executive director.

But that is exactly how he is described in the Huljich Wealth Management investment statement. In business language, "executive director" implies a hands on role.

Banks is a brand and his reputation is a powerful marketing tool.

Is it good enough for a director of a KiwiSaver fund to joke that he "had no idea there were so many hurdles to jump to give someone money".

Surely an understanding of the disclosure regime for a particular business would be a prerequisite for a director of that business.

Maybe these are little things - oversights that can be easily corrected, as Banks chooses to see them.

But let's not forget that it has taken media coverage and a Securities Commission demand for these oversights to be corrected.

This industry needs to get the little things right and if it gets them wrong, it needs to be seen to correct them. If not there is a risk that other, less scrupulous parties may start to see opportunities and enter the sector.

That appears to be what happened with finance companies, and it happened in equity markets in the 1980s - and some would argue still does.

It can not be allowed to happen with KiwiSaver.