By John Grant The practice of selling KiwiSaver door to door is being investigated by the Securities Commission. This is good news for investors, however the investigation needs to be widened into the overall methodology being adopted by a number of the funds into the way this superannuation is sold. We can reveal that a number of the funds are offering up front and trail incentives to unqualified advisers. Up front commission of around $35 and trails of between 15 and 25 basis points are being paid to anybody who does only the very basic of training. A number of mortgage and insurance brokers have jumped at the opportunity. While the commission amounts being paid may seem relatively low, considering the long term nature of the product the trail makes it a significant amount of revenue for the adviser. If a fund reaches $1m then the trail payments would amount to $1500 per annum and all for doing no more than completeing an application.
Further, the practise of selling a fund for KiwiSaver seems to suggest that the person doing so should have some degree of impartiality and ability to compare offerings of fund managers, this method of remuneration is not likely to not encourage this. In some cases commission arrangements extend to include payments to advisers for companies they enrol in the scheme who adopt a particular fund as the default. For every new member in the scheme who uses the default fund manager the adviser receives up front and trail commission even though they have may have never met the new member! There will be some changes flowing from the new adviser regulations that are planned for next year. In the meantime some action is needed to protect new KiwiSaver contributors from lining the pockets of opportunist advisers. ------------ John Grant edits the insurance coverage on interest.co.nz