Despite operating under one of the most highly-regulated sectors KiwiSaver members are among the least confident about NZ investment rules, a just-released Financial Market Authority (FMA) survey reveals, in stark contrast with traditional superannuation fund investors.
The fifth annual FMA ‘Investor Confidence Survey’ found 68 per cent of KiwiSaver members were either confident or very confident about market regulation compared to 85 per cent of traditional super scheme members.
Likewise, KiwiSaver members (along with investors who bought bonds themselves) scored lowest in rating the usefulness of disclosure documents in a metric topped by super fund members and self-directed equity investors.
Just 51 per cent of KiwiSaver members said ‘their statements helped them make an informed decision’ compared to 65 per cent for super scheme members (67 per cent for self-serve share-buyers).
Rob Everett, FMA chief, said the results reaffirmed the regulator’s focus should be on engaging with KiwiSaver members.
“There’s huge knowledge gap there,” Everett said. “Most KiwiSaver members have not participated in financial markets before, and all of us – including the FMA, providers and the CFFC [Commission for Financial Capability] – need to make an effort to lift their awareness and confidence.
“That’s a long-term challenge but we can’t assume that KiwiSaver members will engage without action on both sides of the fence.”
He said the “big test” for KiwiSaver member investment awareness would come during a severe market downturn, which most have yet to experience.
“We did see some short-term reactions [in KiwiSaver investment switches] last year when the market dipped,” Everett said. “But we hope over time to see more resilience as their awareness and confidence grows.”
Regardless of the KiwiSaver effect, overall confidence levels in NZ financial markets jumped to a new high in 2017 of 65 per cent among all 1,000 respondents, up from 58 per cent the previous year. A further 22 per cent were ‘not confident’ or ‘not at all confident’ in NZ financial markets – down slightly on the 2016 figure – while a steady 13 per cent ticked the ‘don’t know’ box.
Over the year traditional super scheme members reported the largest boost in confidence levels – up from 63 per cent in 2016 to 81 per cent in the latest FMA survey – as managed fund investor confidence flat-lined at about 80 per cent during the annual period. Both managed funds and super schemes came under the Financial Markets Conduct Act (FMC) regime last December.
“Two-thirds of people are confident that New Zealand’s financial markets are effectively regulated,” the FMA survey says. “Confidence is highest among people who have heard of the FMA and people who have investments.”
Interestingly, just 40 per cent of respondents had heard of the FMA, representing a slight increase on the 34 per cent figure reported in the regulator’s first survey carried out in 2013 – two years after its establishment.
Everett said the relatively low FMA-awareness figure was “not surprising” nor particularly worrying.
“It’s not a goal for us to lift awareness of the FMA,” he said. “We’re more focused on raising confidence in markets generally.”
Last week the FMA also released a review of the FMC licensing process that has seen the regulator bring 201 entities under its auspices – many of which are facing formal oversight for the first time.
Everett said getting all parties – particularly smaller players – through FMC licensing “was a struggle for us and them” but would result in long-term benefits for NZ.
“Licensing should be a hurdle but we didn’t want the barrier so high that only incumbents would survive,” he said.
The licensing review report says: “However, we think a direct approach to encourage a close dialogue with applicants during their application process worked really well.
“We want to continue to foster the collaborative and engaged nature of these relationships post licensing as we construct our monitoring framework for licence holders.”
Everett said the experience should ease the licensing process one the new financial advisory regime (currently in draft form as the Financial Services Legislation Bill) switches on.
According to the FMA licensing review, the regulator knocked back 11 FMC applications, eight of which were derivative providers, while 41 applicants withdrew midstream (including six managed investment schemes).
“We do not take pleasure in declining or challenging licence applications,” the FMA report says. “With that top of mind, we are determined to work with businesses to help them meet the necessary legal requirements to get a licence. Whenever an applicant applies for a licence for a second time, we consider it as a new application.”