NZ regulators have urged financial service providers to take a “proactive” stance on “identifying and helping” clients experiencing tough times as inflation and higher interest rates bite.
In a joint communiqué issued in September, the Commerce Commission and the Financial Markets Authority note financial services firms should be on the lookout for “vulnerable” clients as part of good business practices.
The industry-targeted message says the regulators expect the firms under their purview to train staff to recognise potential signs of financial stress among their clients including missed payments or requests to liquidate or “make significant and unusual withdrawals from investment products such as KiwiSaver.
After identifying possible distress signals, financial services firms should have procedures in place to pre-emptively contact clients at risk for more in-depth context.
“If financial difficulty is confirmed, it is important to make it clear to the customer that they have options that can be pursued with the help of the provider and/or a licensed financial advice provider and/or financial mentoring service…,” the joint message says.
“At the same time, all providers should be cognisant that short-term solutions, including those requested and/or preferred by a financially stressed customer, may not be in the customer’s best interests. Proper consideration and weight should be given to long-term impacts, and customers made aware of these so that they can make informed decisions.”
Providers also need to tell clients ahead of time of any impending fee or cost increases while offering other choices for those “facing affordability issues”.
“Acceptable marketing and advertising standards must be maintained, including not using heightened financial difficulty as a customer acquisition tool,” the FMA/Commerce Commission note says.
The rare communication collaboration highlights a growing concern from regulators over the treatment of vulnerable clients by financial services firms during the so-called cost-of-living crisis.
For instance, in the FMA 2023 KiwiSaver report, chief economist, Stuart Johnson, flagged the spike in both hardship withdrawals and contribution holidays during the 12-month period for attention.
KiwiSaver hardship withdrawals rose about 38 per cent year-on-year (albeit from a low base) while the number of members on contribution holidays jumped almost 20 per cent.
Johnson says in the report that both the “industry and the FMA have a role to play” in helping those members on a break to restart KiwiSaver contributions as soon as possible.
“Over the coming year, we’ll be talking with KiwiSaver providers to understand how they support their customers to build savings habits and help them achieve their retirement goals,” he says.
The latest Inland Revenue Department (IRD) figures show the number of members on KiwiSaver contribution suspensions dropped to an almost 12-month low in August of 100,693 from the peak of over 104,000 this February: in August 2022 the same statistic stood at just under 99,000.