Houston – You have a problem!
The Financial Markets have found that for every 1000 KiwiSaver sales or transfers, only three were recorded as having been sold with personalised advice….
"While advice (class or personalised) may not always be required, the full spectrum of service must be accessible and made available to clients based on their circumstances."
There were 826 complaints recorded by providers during the six month period the FMA reviewed with nearly a quarter related to enrolment.
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Only 0.03% of you are receiving appropriate advice regarding KiwiSaver. This is a big problem for you.
If you don’t pay attention to your KiwiSaver choices, then you could cost yourself tens of thousands of dollars in your retirement. If you have a financial adviser in front of you, and they are promoting KiwiSaver to you make sure you understand what type of service you are getting.
If you are dealing with a financial adviser who is not an AFA, then you will be receiving class advice for your KiwiSaver.
The adviser will probably get you to sign a “Class Advice” form.
This form enables that financial adviser to prove to their watchdog (Financial Markets Authority) that you (the customer) understood what you were getting into, and the adviser accepts no responsibility if things go bad for you with regards to that investment. More so the adviser won’t get into trouble for the service they are offering.
So why is only 0.03% of KiwiSaver investors getting personalised advice?
• Probably because most members don’t understand the different types of advice available.
• Maybe because it’s convenient to have all finances with one organisation, and be able to see that through their internet banking.
• Maybe they don’t care because the amount is deducted from their salary, and it’s a small amount and the investor has more important things to worry about.
• Possibly because they are not aware of the consequences of having a KiwiSaver account that meets their needs, and unaware that there are around 200 different options for KiwiSaver.
So why don’t investors receive personalised advice regarding KiwiSaver?
From an adviser’s perspective, to provide personalised advice on KiwiSaver, it is likely to take about 4 hours work per investor, including initial meeting, writing up a Statement of Advice, coming back and presenting that to the client.
So how can an adviser get paid for this work?
Either by commission which is minimal see below, or by charging a fee.
Commission: Most KiwiSaver providers don’t pay commission. Those that do will pay the adviser around $30-$40 upfront per account signed. Some providers may provide a top up depending on what the balance being transferred is, and a small trail commission.
Fee: To cover their time and make a profit, for 4 hours work, the adviser would need to charge a fee of at least $200.00. (Forget about the ongoing compliance costs an adviser must pay for being Authorised.)
The rub here is, given Kiwi’s attitude to KiwiSaver, would they pay a fee for this advice?
Most Advisers have concluded “No”
Therefore, they sell the product on a Class advice only basis because they won’t have to put 4 hours work or pay the ongoing compliance costs and role requirements for being Authorised, and pick up an easy 30-40 bucks per member. Mum, Dad & 2 kids = $120-$160 for 20 minutes work (including forms)…too easy.
What can you do about it?
Pay a fee to an AFA to get proper advice, or give me a call.
WealthHealth will provide you with personalised financial advice, in a Financial Plan when you use us for your wider financial needs such as Mortgage Broking & Insurance Broking.
Craig is an AFA adviser & Certified Financial Planner.
Get onto it now, and make sure your KiwiSaver is doing what it needs to do for your retirement.