For the first ever World Investor Week, the Financial Markets Authority wants Kiwis to learn some home truths about investment. Richard Meadows gives consumers some advice on how to take the power back.
The thick and seemingly impenetrable fog that swirls around KiwiSaver is one of the great frustrations of being a financial journalist in New Zealand. The scheme’s been around for 10 years and most working adults are members, but it’s still mired in mystery and misinformation.
Over a million people don’t claim their annual tax credit, which is literally free money for the taking, and five hundred thousand are still stuck in the default holding pens for new members. Instead of making an informed choice about which scheme is right for them, they’re milling around like lambs to the slaughter. It’s manna from heaven for the big financial institutions, which get to harvest fat fees from people who have no idea the rates they are paying.
I have some sympathy for the tinfoil hat-wearers who spew venom and conspiracy theories in the comments section of news sites. While I’m not convinced ‘John Keys’ and his mates are in fact reptilian shape-shifters, there really is a striking power imbalance between the financial services industry and the people it serves.
Finance professionals have degrees bulging out their ears. They know exactly how their products work, even though they’re careful to disguise it behind incoherent mumbling. Meanwhile, the rest of us just have to sort of take their word for it. If I didn’t happen to write about this stuff for a living, I’d probably still think the credit crunch was a brand of children’s cereal. Questioning the finance gods is intimidating, which makes it all the more tempting to just let your eyes glaze over and sign on the dotted line.
It’s hard to say how much of this is a deliberate strategy – a ‘confusopoly’ to bamboozle us with technical jargon and weird pricing structures – and how much of it is just boffins being boffins. Some providers have won accolades at the Plain English Awards for their clear communication. Others have gone home with a tub of sour worms – a gag prize for being literally the worst.
Witness the breathtaking lack of self-awareness in this investor update, which crams in several Financial Buzzword Bingo!!! cards worth of jargon before asking readers if they’re confused:
You shouldn’t need to take night classes in economics just to read your KiwiSaver scheme’s investment statement. The good news is, change is in the air.
The Financial Markets Authority (FMA) – the watchdog tasked with monitoring the markets – is taking a keen interest here. In December last year, it fully assumed stronger powers to supervise the markets and intervene when necessary, as well as license KiwiSaver providers, super schemes, fund managers, discretionary investment managers, financial advisers, peer-to-peer lenders, and crowdfunding platforms.
Applications for licenses came flooding in, but the quality was a bit spotty. Fifty-two attempts either failed or were withdrawn, which is not that surprising when you consider that some applicants literally handed in documents that still said ‘insert company name here’.
What matters is that those who made it through the wringer – more than 200 schemes and players – have obligations to all of us little fishes now. Whenever you deal with a licensed provider, you’re entitled to certain standards of service. If providers don’t toe the line, they’ll have to answer to the FMA.
Here are your entitlements as an investor:
- As a basic starting point, providers have to be competent enough to give you the right product or service to meet your needs.
- They’ve also got to be upfront and honest, and put your interest at the heart of their business. Sneaky backhanders are a big no-no – if they’re earning a commission by signing you up to a product or service, you must be told about it.
- Obfuscating information conveyance to the end consumer via highly specialised terminology and superfluously convoluted modes of communication constitutes inadmissible deportment.
Huh? Exactly. Financial gobbledegook is not on. You’re entitled to be clearly informed about your options, and have the pros and cons explained to you.
- Fees must be clear and understandable. This is a particularly big issue with KiwiSaver, where less than half of members feel that fees have been explained to them properly.
On top of that, providers should be able to justify why the fees are reasonable, so don’t be afraid to push back (to get a sense of what’s fair, check out Sorted’s KiwiSaver fee calculator).
- If you’ve got any problems or complaints, your provider ought to respond constructively. If it can’t be sorted out between you, they should refer you to their disputes resolution scheme.
The FMA can take action in serious cases, but in most of these situations an ounce of prevention is worth a pound of cure. If you’re armed with the knowledge of what you’re entitled to and what questions you should ask, you can just walk away from a situation that doesn’t pass the sniff test, and take your business elsewhere.
Brushing up on this sort of stuff is crucial if you want to protect your own neck, but there’s a broader societal benefit too.
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Remember how the global financial crisis brought the world to its knees? The initial rot set in with a class of hideous financial products that almost no-one properly understood or bothered to question. The emperor was running down the street completely starkers, and everyone was too timid to point out his junk was flopping around all over the show. If people hadn’t accepted misinformation and confusion as being the norm, we might have avoided the whole disastrous mess.
Being brave enough to ask questions, push back on dodgy practices, and generally hold providers to a higher standard really does make a difference. As more people get clued up and these entitlements start to become common knowledge, the balance of power will finally begin to shift back towards the little guy. This is our chance to strip away the fog of confusion once and for all, and let the sunlight come streaming in.
This content is brought to you by the Financial Markets Authority. The FMA is the regulator for New Zealand’s financial markets and services. At the start of the first World Investor Week, the FMA is urging investors to use a licensed provider and check out its website for tips about becoming a smart investor.