Investment alert: Beware the KiwiSaver switcher

Investment alert: Beware the KiwiSaver switcher

KiwiSaver is a multi-billion dollar business and the level of fund switching has increased dramatically. Much of this switching is ill-informed and is being promoted by financial institutions or individuals who are keen to move your KiwiSaver to where they can generate revenue from it.

Seek professional considered advice and analysis before letting anyone move your KiwiSaver account. Milestone has developed a report that is essential reading for all KiwiSaver holders, especially those who have been recommended to move their KiwiSaver account.

What is switching?

Switching is where an organisation or individual recommends to a KiwiSaver holder that they move their money from one fund provider to another fund provider or from one fund to another fund with the same provider.

Is switching bad?

There is nothing illegal about the act of switching and KiwiSaver has been constructed so that in most cases, there is no cost for you to move from one fund or provider to another. (Some providers may charge an exit fee.) If you are being advised by an Authorised Financial Adviser (AFA) then they have to achieve specific knowledge, competency and skill requirements, and under the Code of Professional Conduct, they must place the interests of the client first and act with integrity. Therefore, there is a greater chance that an AFA has made a recommendation to you to switch based upon it being in your best interests.

However, Registered Financial Advisers (RFAs) and QFE Advisers have no such responsibility to act in your best interests or to act with integrity (although the good ones do that). QFE advisers can only provide recommendations on the products promoted by their employer and RFAs can only provide ‘class advice’ on KiwiSaver and would be acting illegally if they provided a client with specific personalised advice on switching KiwiSaver.

You may decide to switch all on your own with no external advice being provided. You are free to do this but ensure you make a decision based upon logic and research rather than hearsay, emotion, or chasing last year’s highest performer.

Switching is good if one is moving to a fund that:

  • Has the correct investment objectives for one’s needs.
  • Has the appropriate risk profile.
  • Is managed by a high quality fund manager with an established track record.
  • Has a better risk-adjusted return based over a number of years of performance. Note we are not recommending investors chase the highest performing fund. It needs to be a fund that has a good trade off between the return it provides vs the risk it takes to achieve that return.
  • Has high quality external research available to enable one to adequately assess its performance relative to its peers. We recommend the Morningstar KiwiSaver research report.
  • The fund fees are low and commensurate with the asset class it invests into.
  • There is a high level of easily accessible information available on the fund either directly from the provider or from your financial adviser.

If all the above factors are not present, then STOP and start asking some serious questions around why you are being recommended to switch or why you are planning to do it yourself. Ask yourself: Who or what is driving this decision? Is it in my best interests? Will I be better off in the short and long-term by taking this action? If the answer is no, then seek professional advice from an AFA. They will know what to do.

What is enough analysis?

The level of analysis on whether you should switch your KiwiSaver and to which provider or fund will be determined by factors such as the current KiwiSaver balance, your investment objectives, timeframe and where your KiwiSaver is currently located.

If you are being advised by an organisation or individual, then the very least you should expect is a report from the entity that outlines the following:

  • An analysis of your current KiwiSaver provider and fund and how has that performed relative to its peers in the same asset class. Performance will be a mixture of return, risk taken, fees etc.
  • Whether remaining in that fund will achieve your investment goals. If it is not going to achieve your goals, then why not and how much will it not achieve them by.
  • Comments around what other alternatives are available to you to achieve your investment goals and whether these have been considered in making the switch recommendation.
  • Analysis of the new provider or fund being recommended. What makes this new fund better, and how will it better achieve your investment objectives. The provision of an independent research report on the new fund (and preferably one on the existing fund as well). The research report should be showing that the new fund is of a high quality relative to its peers and asset class.
  • An outline of the benefits and risks of moving and of the new fund.
  • A disclosure of any conflicts of interest by the person making the recommendation and how much they will be remunerated. You are looking for a disclosure statement to give you this information and if it is not on a Secondary Disclosure Statement (these are only legally provided by AFAs), then insist these conflicts and remuneration are disclosed in writing in the report you receive. There should be clear guidance as to how you can complain if the advice you have been given is not appropriate.
  • The Investment Statement of the new KiwiSaver fund.

Unsure: What can you do?

If you have already switched your KiwiSaver and have not received appropriate written advice then you have the ability to complain to the adviser or organisation that provided you the advice. If the complaint is not resolved to your satisfaction, then you can complain to the Financial Markets Authority (FMA) or the Dispute Resolution Service of that adviser.

Milestone offers a special service to KiwiSaver investors who are concerned about whether they are in the most appropriate KiwiSaver fund. This is initially a class service and if specific personalised advice is required, then a fee will be quoted to produce a report on whether your existing KiwiSaver fund is appropriate for you.

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