Shelley Hanna: No big KiwiSaver rake off

Q. My husband met a financial adviser at a social function recently and he talked about the benefits of KiwiSaver. I would rather pay off our mortgage than put money into KiwiSaver - my husband is a self-employed painter and decorator and we don't have much to spare. Is joining KiwiSaver a good idea or is the financial adviser just after a commission?

A. Only an Authorised Financial Adviser can give personalised advice on KiwiSaver, such as whether it is right for someone in your husband's situation. I will therefore assume that the financial adviser your husband was speaking to was Authorised. The only exception are staff working for a bank or similar "Qualifying Financial Entity" (QFE) who are supervised by their workplace. They in turn are trained to give advice only on the products offered by the QFE (and are often paid a bonus, according to how many products they sell).

If your husband sits down with an Authorised Financial Adviser with the intention of joining KiwiSaver, the adviser will have to give him a Disclosure Statement setting out in dollar terms all fees or commissions he will receive. This is one of the requirements of the Financial Advisers Act.

Most Authorised Financial Advisers who give advice on KiwiSaver do so more as a courtesy than for financial benefit. Those Authorised Financial Advisers like myself who offer advice on KiwiSaver spend our time signing people up to KiwiSaver mostly for the satisfaction that it gives us to have a happy customer. It is rewarding to see our clients' pleasure at watching their KiwiSaver balance growing. It also gives us the opportunity to establish a relationship with a new client who may have other investment needs in the future.

Some Authorised Financial Advisers may have an agreement with a fund manager to receive up to $50 for every new application. I have not been approached by any fund managers with such an offer, so I don't know if it is that common, but it will be disclosed to the client.

Speaking for myself, from a financial point of view there is no immediate financial reward. My company has a relationship with selected fund managers who will pay a commission of up to 0.20 per cent per annum of their management fee to my company for looking after those KiwiSaver clients that I work with.

In dollar terms, this means that my company will get $10 per year for a client with a balance of $5000, or $40 per year when their balance gets up to $20,000 (which may take 5-plus years). This comes out of the fund manager's pocket, not the client's, but it is disclosed to the client.

Legislation has driven the move from upfront commissions to fee-based financial advice, so that investors can get advice unbiased by financial rewards and incentives.

Unfortunately, investors have become accustomed to expect commission at some level and as a result are either suspicious of financial advisers or unwilling to pay for impartial advice.

It will take time for this attitude to change.

Financial products can be confusing and fees are often the most confusing part. The Government would like to see greater clarity in this area.

Authorised Financial Advisers are required by law to communicate clearly, concisely and effectively. They are also required to "place the interests of the client first".

If at any time you are have suspicions about an Authorised Financial Adviser's motivation just ask "What do you get out of this?" They should give you a clear, concise and honest answer.

Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice. Send your KiwiSaver questions to shelley.hanna@peak.net.nz. You can read earlier columns at www.peak.net.nz.