The long-awaited Financial Markets Authority (FMA) report into KiwiSaver sales practices found transfers account for about half of all transactions.
Of the 142,003 total KiwiSaver sales the FMA uncovered in its seven-month data dig last year over 70,000 were transfers, the report says.
And despite concerns about transfers (particularly bank-initiated member shifts) sparking the original investigation, the FMA found no evidence of systemic abuse of distribution power.
Bank sales practices have come under scrutiny in other jurisdictions, too, with UK-based Royal Bank of Scotland dropping all staff sales bonuses lasts week to ward off product mis-selling.
According to the FMA report, the combined five bank schemes it reviewed over May 1 to October 31 last year accrued a net member gain of more than 20,000 while the five non-bank providers collectively leeched out about 5,000 members.
“The net effect of the 70,000 transfers during the six-month period was non-banks losing market share to banks,” the report says.
“Our data indicated an isolated area of concern about members being transferred without their consent. We do not have evidence that this is widespread, but we have followed up with one provider in particular to improve their controls.”
The regulator also picked out a further two providers “who had a high percentage of transfers which were subsequently stopped”.
Of the approximately 120 consumer complaints regarding KiwiSaver transfers the FMA discovered during its review about 30 were ranked as ‘serious’ breaches, the report says.
The report found almost 200 complaints about KiwiSaver enrolment, of which over 120 were tagged as serious by the regulator.
While the report cleared the KiwiSaver industry of entrenched mis-selling practices, it did recommend a number of areas providers could lift performance, including oversight, client communication and record-keeping.
“Most providers did not have records of the type of service provided in transfer situations,” the FMA report says. “We encourage providers to ensure their staff have adequate skills to make an assessment of client needs – from information only through to advice and to record the nature of the service provided.”
Investment News NZ understands at least one bank is on the cusp of introducing a new technology-driven sales compliance solution.
The FMA says it would debrief all KiwiSaver providers that took part in the review.
In a statement, Liam Mason, FMA director of regulation, said: “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.”
While KiwiSaver sales formed a major part of the review, the FMA report also looked at sales practices of financial advisers, brokers and custodians.
As at June 30 this year, the FMA recorded:
- around 26,000 advisers who work for 57 large organisations such as banks and fund managers, known as qualifying financial entities (QFEs);
- 6,420 registered financial advisers (RFAs);
- 1,845 authorised financial advisers (AFAs).
“Our monitoring of AFAs shows the vast majority are committed to taking their obligations seriously, and we will continue to support these advisers,” the report says.