KiwiSaver transfers will become easier to facilitate under the disclosure-lite ‘class advice’ provisions if new stop-gap regulatory proposals released last week pass muster.
Currently, most KiwiSaver transfer discussions with advisers are subject to the heavy-duty compliance ‘personalised’ financial advice regime, according to as the Financial Markets Authority (FMA) 2012 guidance note.
In the 2012 version, which last week’s proposals will replace, the FMA limits the ambit of class advice on KiwiSaver scheme transfers and portfolio switches to broadly-defined trigger points such as “changes in the client’s age, time to retirement or risk appetite”.
“Personalised advice is also more likely to be required where a client has transferred out of a KiwiSaver scheme and is now being encouraged to rejoin their original scheme (sometimes referred to as ‘reinstating scheme membership’),” the 2012 FMA note says.
However, the latest FMA consultation document says class advice can now cover comparing features of various schemes (including fees and returns) as well as directing clients to KiwiSaver comparison tools.
“We believe it is important to recommend that customers consider the pros and cons of transferring from their existing scheme to another scheme,” the FMA consultation document says. “Post consultation, as part of finalising this guidance, we will reflect this by revising existing guidance on product replacement advice; and updating existing information for consumers on our website about transferring to a new provider.”
The regulator also says KiwiSaver ‘robo-advisers’ would fit the class designation if they simply encourage investors to: join KiwiSaver; choose a contribution rate; identify a risk-appropriate type of fund; and, work out the correct member tax rate.
“You will also have the assurance the advice is not shaped by a person’s financial situation and goals as your digital tools can limit questions to getting information about a class of people,” the FMA consultation document says.
The current Financial Advisers Act (FAA) prohibits fully-personalised auto-advice, however, the government has agreed to legitimise robo-advisers when the law is revamped next year.
Last week a Kiwi Wealth survey found just 8 per cent of respondents had heard of robo-advice but 20 per cent said they would consider using it for retirement planning. About half of those surveyed would prefer using a human adviser, the Kiwi Wealth research found.
Nonetheless, Joe Bishop, Kiwi Wealth head of retail wealth, said in a statement that “robo-advice has the potential to democratise access to financial advice for all New Zealanders, particularly as KiwiSaver accounts grow and other investments play a role”.
“The long-term well-being of the country requires us to manage our retirement investments well,” Bishop said. “New technology will make it easier for Kiwis to get the financial advice they need.”
Kiwi Wealth has just upgraded its quasi-robo-advice tool to include data about government superannuation payments. The Kiwi Wealth tool already takes into account other factors such as “current balance, contribution rates, projected returns and other economic factors” to calculate potential retirement income for individual members.
Meanwhile, the FMA consultation document says the regulator will closely monitor how KiwiSaver providers use incentives with both members and sales/advice networks.
The regulator says if KiwiSaver incentives do not support good customer outcomes it “will consider all appropriate actions open to us”.
Submissions on the FMA KiwiSaver advice guidance note close on December 16.
However, once the revised FAA legislation comes into effect “this guidance will be reviewed and possibly replaced”, the FMA says.
In a statement, Liam Mason, FMA director of regulation, said: “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.”