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G & J

Sales and Advice

24 Nov 2015

The Financial Markets Authority (FMA) regularly produces reports on various aspects relating to the finance markets. Their latest release is “Sales and Advice” for the period 1 July 2014 to 30 June 2015. The report covers thousands of advisers and sales people who help invest billions of dollars in financial products each year.

They classify advisers and sales people according to the types of products they sell or advise on. By far the largest group is the around 26,000 advisers who work for 57 large organisations such as banks and fund managers, known as qualifying financial entities (QFEs).

The only category 1 products that QFE advisers can give personalised advice on are those promoted or issued by their own QFE.

There were 6420 registered financial advisers (RFAs) who can only give personalised advice on category 2 products (primarily insurances and mortgages). And there were 1845 authorised financial advisers (AFAs) who are individually authorised by the FMA to provide personalised advice on both category 1 and category 2 products. They can also be licensed to provide investment planning services.

The review by the FMA included data from 10 KiwiSaver scheme providers, covering 81% of KiwiSaver members. It was not unsurprising that for KiwiSaver few providers collected and recorded useful data on sales, with the reports to management focussing on volume.

It appears that the large providers are very much sales centric. The FMA commented that organisations that with a customer centric focus were much more likely to have processes which led to good outcomes for customers, even if that outcome did not result in the sale of a product. It is not surprising that boutique investment adviser businesses, mutual societies and cooperatives were more likely to have a customer centric focus.

The FMA has a key ethical requirement that advisers must always act in the client’s best interest. Despite this the report mentions cases where customers have been sold a product such as life insurance or KiwiSaver, when their original intention had been to organise a different product, such as a credit card or home loan. In some cases, there has been little, if any, awareness by the customer that the agreement to acquire the secondary product (e.g. KiwiSaver) has been finalised.

Around half of the KiwiSaver sales for the year to June 2015 were transfers between schemes. In a six-month period, this was about 70,000 transfers. Basically this was non-banks losing market share to banks.

Switching providers requires careful consideration. Investors need to be made aware of the potential drawbacks and benefits. It also appears that for every 1000 sales or transfers, only three were recorded as having been sold with personalised advice.

For many people, KiwiSaver will be their largest investment asset. It is well worth taking independent advice before you change or consider changing providers. In most situations it is only an Authorised Financial Adviser who can provide personalised advice on a range of alternative schemes.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.