Updated guidance on KiwiSaver advice for consultation
MR No. 2016 – 32
8 November 2016
FMA issues updated guidance on KiwiSaver advice for consultation
The FMA is consulting on revised guidance on advice for KiwiSaver sales. The intention of the revised guidance, published today for consultation, is to encourage advisers and financial firms to help New Zealanders make good decisions about KiwiSaver.
The FMA’s review of KiwiSaver sales and advice practices in 2015 found that only 3 in 1000 sales or transfers had occurred with personalised advice. There was also little management reporting available on how providers were helping their customers in other ways, in the absence of personalised advice. Providers told the FMA that one of the obstacles to giving KiwiSaver customers advice was the guidance FMA had issued in 2012, which they believed to be restrictive.
The new draft guide replaces the 2012 guidance, based on that feedback.
Liam Mason, Director of Regulation, said “we have revised our previous guidance because we want advisers and firms offering KiwiSaver to be more confident that they can have conversations and offer advice within the rules.
“We are paying special attention to explaining what constitutes class advice because much of what customers want and need to know about KiwiSaver is class advice.”
A key part of this is providing simple scenarios in the guidance, to explain the differences between class and personalised advice.
In the guidance the FMA says that there are four main pieces of information and advice that will be useful for every customer, in every decision they make about KiwiSaver:
- Be in KiwiSaver – joining is one the most important decisions
- Contribute – choose a contribution rate that suits you and at least enough to receive the member tax credit
- The right fund – identify the right kind of investment fund
- Tell the scheme your correct tax rate
The FMA acknowledges in the guidance that the Government has signalled significant changes to the Financial Advisers Act 2008 (FAA), which will affect the rules for advice on financial services and products including KiwiSaver.
“While the new legislation is being prepared, we have chosen to act on the opportunity to offer an interim solution to some of the issues that providers and advisers say prevents them from helping their customers. We hope our new guidance will encourage providers to now go ahead and support their customers to get the help they need.”
The FMA recognises that while many people could benefit from detailed personalised advice there is a more pressing need to get people started and thinking about what is important in KiwiSaver.
The guidance also covers the use of incentives to encourage KiwiSaver members to transfer from one provider to another. While the FMA’s overall view is that incentives can be provided, they should not be so attractive, nor offered in such a way (for example, with a time limit), that distracts a customer from making a good decision about KiwiSaver.
The guidance also notes of transfers more generally, that providers should encourage customers to weigh up the pros and cons of transferring from their existing provider, including giving them information about comparative tools such as Fund Finder on www.sorted.org.