Several providers have already relaxed constraints on staff for giving KiwiSaver advice following the release of the regulator’s new guidance note last week, according to Liam Mason, Financial Market Authority (FMA) director regulation.
In the wake the updated guidance note – which replaces the more prescriptive 2012 version – Mason said the FMA was aware of a number of firms giving frontline staff the go-ahead to engage with clients on KiwiSaver including switching and prompts around appropriate investment strategies.
He said previously under the 2012 ‘Sale and Distribution of KiwiSaver’ guidance many providers precluded staff from discussing the savings scheme for fear of breaching the barrier between ‘class’ and ‘personalised’ advice.
“We’re tackling the problem that we saw coming out of our earlier monitoring work with KiwiSaver providers,” Mason said. “From that we saw just three in every 1,000 clients who switched schemes were getting personalised advice – and there was not much evidence of class advice being given either.”
The new FMA ‘KiwiSaver advice’ guidance clarifies that class advice can include: promoting the virtues of a particular scheme; choosing a type of fund within a scheme; switching funds; transferring to a different scheme; and, choosing a contribution rate.
For the first time, too, in the new note the regulator greenlights the use of incentives to sell KiwiSaver.
“Incentives can achieve good outcomes for customers when they encourage customers to get the best out of KiwiSaver,” the guidance says. “Examples include; incentives offered to existing customers to provide a prescribed investor rate, or an email address (so they can receive information about their investment), or to engage in a discussion about whether switching from a default KiwiSaver fund to another fund within a scheme may better meet their needs.”
While the move has seen the FMA cop some media flak for being ‘soft on banks’, Mason said the guidance on incentives reinforces the regulator’s principles-focused policing of the sector.
“We’re saying that incentives are not a hard bottom-line issue,” Mason said, with banning specific KiwiSaver sales perks more likely to “encourage avoidance behaviour”.
“This is consistent with our principles-based approach to regulation. We will consider both the size and nature of the incentives and their prominence in the sales process in our monitoring of KiwiSaver providers,” he said.
The latest guidance note says: “If we believe an incentive offered by a provider may distract a customer from making a good decision about KiwiSaver, we will look more closely at what the provider is offering, as well as how and why it’s offered (including internal sales incentives).”
Mason said to date the FMA has not taken action on any inappropriate KiwiSaver sales incentives but “we have had discussions with firms around their incentive plans”.
“At the same time we’re also putting pressure on default schemes to engage with members,” he said. “And providers are telling us it’s hard to do that if they can’t incentivise staff.”
A number of banks and industry organisations argued against introducing the new guidance before the revised financial advisory regime kicks in (scheduled to begin in 2019 under current proposals), the FMA says, admitting that the just-published note “will be reviewed and possibly replaced”.
“But we’re confident that the current changes will pull the industry in the right direction in readiness for the [advisory legislation] reforms,” Mason said.
He said the FMA would closely monitor the impact of the new KiwiSaver guidance note through industry surveillance and consumer surveys.
According to the latest Inland Revenue Department (IRD) statistics, the monthly number of KiwiSaver scheme transfers has remained broadly consistent over the previous year.
The IRD stats show 11,560 KiwiSaver members swapped schemes in January of this year – a drop of about 200 on the December 2016 figures. Over the annual period, monthly scheme transfers ranged from 11,058 in April to 15,064 in September 2016.
KiwiSaver membership also broke through the 2.7 million mark in January this year as the number on contribution holidays also fell by 10 month-on-month to 129,380.
However, for the time-being the IRD KiwiSaver data series has a gap where October 2016 should be. An IRD spokesperson said due to staff evacuation from a Wellington building during the November 2016 Kaikoura earthquake, the October numbers have yet to be retrieved “from the system”.