By Gareth Vaughan
Financial Markets Authority CEO Rob Everett believes the messages the regulator has been sending KiwiSaver providers about appropriate behaviour are getting through.
"We've spent a lot of time as you know looking at switching, looking at disclosures, a lot of time looking at fees and just generally spending time with the providers," Everett told interest.co.nz in a Double Shot interview.
"We are confident now that some of the messages we were delivering last year and before that have been heard. And that the processes the banks and other providers follow in trying to engage with their customers including switching conversations, are better handled than they seemed to be at the beginning," Everett added.
In 2014 the FMA was strongly critical of bank behaviour in KiwiSaver highlighting the interests of customers weren't being put first, noting this reflected poorly on the banks' attitude towards the customer and/or the product. At the time Everett said the FMA was keen to see any switching scandal avoided as banks enticed customers away from rival KiwiSaver providers, often as part of a cross sell.
"We did a lot of work, not just with the banks, on the switching processes. KiwiSaver for some of the providers is an entry point into a broader conversation. So what we've been trying to do is make sure any conversation that does involve switching is handled properly. And we're confident that the influence we're having is being beneficial there," Everett said.
As of December 31, there was $30.841 billion of funds under management in KiwiSaver. The six biggest KiwiSaver providers, ANZ, ASB, AMP, Westpac, Fisher Funds which is 49% owned by TSB Bank, and Kiwibank's sister company Kiwi Wealth, accounted for 86.3% of funds. Three years earlier, the largest six providers accounted for 78.9% of the market.
Everett describes KiwiSaver providers' role as a "privileged position."
"We're also very focused on getting KiwiSaver providers to take seriously the obligation to engage with their customers and that's not necessarily about switching. It's about contributions, it's about 'are you in the right fund', it's about how you really build this into your financial planning. We're spending, at the moment, more time trying to make sure providers take that obligation really seriously and helping them understand when that's an appropriate conversation and when it might veer towards trying to encourage someone to do something they can't demonstrate's in their best interests," said Everett.
In a major report on KiwiSaver last year, Treasury described fee levels as "opaque," pointing out there's no universal definition of the different fees charged by different providers. The FMA this week released an information sheet on how it expects fund managers to disclose performance based fees to investors.
Everett noted the actual level of fees isn't something the FMA has jurisdiction over, and the legislation sets out "a whole bunch of things that need to be in disclosures that we don't get to change." KiwiSaver fees were likely to be an issue for the Commerce Commission if it felt the sector had become uncompetitive and the interests of customers were being harmed, he suggested.
Everett pointed out that while KiwiSaver funds under management have gone through $30 billion, in global terms this is "a drop in the ocean." Compared to the likes of the US or Australian funds management sectors, the amount of money under management here is small, he added.
"And actually some of the fees are quite comparable to Australia already. So whilst I don't think I would ever say 'I don't think the fees could come down', it is a by-product of sheer scale and I'm just not sure we're quite at that scale yet," Everett said.
He did say, however, that fees, performance benchmarks and risk indicators could be explained better by KiwiSaver providers, and in a way that's more comparable.
*This article was first published in our email for paying subscribers early on Thursday morning. See here for more details and how to subscribe.