Wednesday 1st October 2014
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The Financial Markets Authority has warned KiwiSaver providers over sharp sales practices following a doubling of the amount of money switched by customers into other schemes in the past year.
The FMA's KiwiSaver report out today for the 12 months to June 30 showed overall KiwiSaver funds have grown 29 per cent to $21.4 billion, with 235,730 new members joining over the year.
Over that year, some $3.57 billion was transferred between schemes, up 333 percent from $825 million in the 2013 report, although some of this increase was due to a merger of two of the largest providers. Around $1.4 billion was transferred between schemes as members changed provider. The year-on-year growth in transfers of members' money from 2012 to 2013 was only 11 per cent.
FMA director of compliance Elaine Campbell is calling on KiwiSaver providers to put the interests of customers first as competition for market share becomes more intense. There have been several instances of selling behaviour that doesn't align with the guidance the FMA has given to qualifying financial entities, she said.
In a separate QFE Monitoring report released earlier this month, the FMA cited examples from various sources concerning KiwiSaver sales and switching practices. One example of this was a bank asking customers if they would like to access their KiwiSaver information online alongside other bank information, without explaining that would mean the customer had to transfer to the bank's KiwiSaver product.
Another example was stating that an application for credit would be more favourably considered if the customer transferred their KiwiSaver to the bank. In another case, a bank signed customers up for a credit card or personal loan and provided a KiwiSaver transfer form alongside the other documentation for signing, leading the customer to inadvertently transfer their KiwiSaver to the bank.
These examples of the banks' "would you like fries with that" approach to KiwiSaver didn't place the customers' interests first and reflected poorly on the provider's attitude towards their customer, the report said.
Campbell said the FMA had given warnings to the providers to end this type of behaviour and individual complaints had been referred back to the banks involved to be resolved. She said the regulator's approach was to send a message to the boards and senior management of the banks that change was required in their sales practices but if the same pattern of behaviour continued it would need to consider "more pointed regulatory tools". Campbell said if customers were approached by banks about switching their scheme they should ask to consult a financial adviser before deciding.
Switching schemes is not a bad thing in itself, particularly given many KiwiSavers are in low growth funds that don't necessarily provide them with the best returns relative to their risk profile. Around 47 per cent of $10.1 billion of total KiwiSaver funds is in low risk, conservative or cash funds, compared to half last year.
KiwiSavers now have better ways of assessing schemes with information readily available comparing fees and funds performance and the Sorted website has a risk calculation tool that could help people decide what sort of fund would be best for them to invest in, Campbell said.
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