Advising clients from or in New Zealand

If you have clients who are moving to New Zealand, or you’re advising people who have recently moved from NZ to Australia, this can create difficulties relating to providing advice.

Some of this relates to regulatory barriers, and some of this relates to differences between NZ and Australia, such as how KiwiSaver operates relative to Australian superannuation. 

The purpose of this article is to go some way to bridging this gap.

I discuss some of the regulatory issues with advising people physically in NZ (and yes, that even includes Australians on holiday in NZ), explain some of the key differences between Australian superannuation and NZ KiwiSaver, and make some general observations about how providing financial advice in NZ differs from providing advice in Australia. 

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Some tid bits to get you interested: 

• KiwiSaver in NZ doesn’t have the same tax-concessional status as Australian superannuation. The maximum annual ‘tax credit’ an individual can usually receive is NZD521
• NZ doesn’t really have capital gains tax
• The highest marginal tax rate in NZ is 33 per cent. However, there are far less ways to reduce your taxable income, such as contributing to superannuation (as above), or deducting expenses against personal income; and
• Kiwis receive an Age Pension (referred to as superannuation in NZ) regardless of their assets or income – around NZD31,000 per year for a couple over the age of 65. 

The regulatory gap

If you’re not authorised to provide financial advice in NZ, it can be difficult to advise clients who have moved to NZ, even if it relates to their Australian-based financial affairs.

NZ’s Financial Advisers Act 2008 applies to financial adviser services received by persons in NZ.

This is regardless of the location of the person providing the service and whether the products in question are NZ-based or not.

The Financial Markets Authority (FMA) (the NZ equivalent of the Australian Securities and Investments Commission) has issued an exemption, allowing Australian licensees to provide unsolicited services to NZ clients.

However, you are required to register as a financial service provider in NZ, be a member of a NZ dispute resolution scheme, and notify the FMA.

This isn’t as hard as it might sound, but it involves some administrative burdens, and costs about $1,000 per adviser per year. 

In practice, I’m not sure how concerned the FMA would be if you were, for example, advising your Australian-based clients while they were on holiday in NZ.

There’s also a defence in some cases for someone who can show, on the balance of probabilities, that they did not know, and ought not reasonably to have known, that the NZ regime applied to them. 

But if you’re providing advice to someone in relation to, say, KiwiSaver, or NZ-based financial products, this defence is unlikely to apply to you.

In the event of a dispute, I don’t think your professional indemnity insurer would be impressed with you providing advice in relation to products that are subject to a completely different regulatory regime. 

KiwiSaver and Australian Superannuation are very different creatures

On a surface level, KiwiSaver and Australian superannuation are similar.

You contribute during your working life, the funds are locked away, and at a certain point in your life you’re able to access the funds.

Furthermore, there is a portability scheme allowing Australians and Kiwis to transfer funds from their Australian superannuation funds into KiwiSaver and vice versa, if they’ve moved from one country to the other.

Many people who move from Australia to NZ are Kiwis who’ve spent some time in Australia but are returning to NZ indefinitely.

It seems to be common for these people to want to transfer their funds from their Australian superannuation fund into their KiwiSaver fund.

Many KiwiSaver product issuers are keen to explain how to do this, and provide reasons for wanting to do this. However, there aren’t many people pointing out the disadvantages with doing so. 

Having worked in Australia for 10 years, I accumulated a decent amount of superannuation savings. Personally, I expect to keep my superannuation funds in Australia, unless there is a regulatory change that provokes me to transfer it to NZ.

The primary reason for this is that Australian superannuation is treated much better from a taxation perspective.

KiwiSaver doesn’t have tax-concessional status.

The biggest benefit you get from the government is a $521 ‘member tax credit’ every year, if you contribute at least twice that ($1,043) over that period.

Otherwise taxable income in KiwiSaver is taxed at a similar rate to your marginal tax rate.

In NZ, people can use KiwiSaver funds to help buy their first home. However, money that originated from an Australian super fund cannot be used for this purpose.

The relationship between KiwiSaver and insurance is nothing like in Australia either.

You cannot use your KiwiSaver funds to pay for insurance premiums. This is overlooked by many people switching their Australian superannuation funds to KiwiSaver – they are losing the insurance that they had with their Australian superannuation policy.

In NZ, you can only be a member of one KiwiSaver fund at a time. Nor is there an equivalent to SMSFs in NZ.

Basically, the entire KiwiSaver market (consisting a few dozen providers) consists of retail funds. 

Some differences between the Australian and NZ financial advice industries

The licensing regime is different and this has structural repercussions

Broadly speaking, financial advisers are authorised at the adviser level, and not the licensee level. As a consequence of this, NZ doesn’t have adviser groups in the same way that Australia does. 

A large part of NZ’s financial advice market is vertically integrated, but it’s easier to run an entirely independent financial advice business. By my assessment, independent financial advisers are a larger proportion of advisers in NZ.

NZ’s regulatory regime kicks in when providing an investment planning service, whether that relates to a product recommendation or not

Australia’s advice regime is product-focussed. The definition of financial advice in the Corporations Act 2001 relates to statements of opinion or recommendations in relation to financial products.

This isn’t quite the case in NZ.

One of NZ’s regulated services is an “investment planning service”. This relates to preparing a plan that includes one or more recommendations about how the client might be able to achieve their investment goals. It isn’t linked to financial products. 

So technically, advice that relates to property is caught. (Whether this happens in practice or not is another question…)

There is a bigger distinction between investment advisers and insurance advisers in NZ

Advisers in NZ more clearly delineate themselves as ‘investment advisers’ or ‘risk advisers’. 

I think the biggest reason for this is regulatory.

As it stands, there are two main types of ‘financial advisers’ – ‘registered financial advisers’ (RFAs) and ‘authorised financial advisers’ (AFAs).

AFAs are able to provide investment advice, and need to meet minimum skill requirements, and undertake formal professional development.

RFAs, however, have an easier time from a regulatory perspective and tend to focus on risk advice.

In practice, there’s also less overlap between investment and risk advice in NZ.

In Australia, you need to understand insurance to advise on superannuation, and you need to understand superannuation to advise on insurance.

Because KiwiSaver isn’t linked to insurance, the two types of advice are often perceived to be quite distinct.

Commission still exists in NZ

Even advisers claiming to be ‘independent’ (the term ‘independent’ doesn’t have a s 911A-like prohibition) often receive commission in relation to KiwiSaver (commonly 0.2 to 0.5 per cent of funds).

And yes, risk advisers can receive commissions in NZ that would make Australian risk advisers cry. 

Trusts are more common in NZ

Kiwis love family trusts. Most of them are home-only trusts. In the past this might have been for tax and Government benefit reasons. 

I suspect the difference between Australia and NZ is a function of two things: in Australia, most people focus on utilising superannuation because of its favourable tax treatment.

Also, because NZ does not have capital gains tax, Kiwis don’t have to worry about owning a family home in their own name to minimise the amount of CGT they pay when they sell it. 

There is no capital gains tax and the top marginal tax rate is 33 per cent

In NZ, there are far less opportunities to structure your affairs to minimise tax.

You can’t easily claim deductions against your income. There’s nothing like superannuation that allows you to profoundly reduce your effective tax rate.

So, although the headline rate might seem low compared to Australia’s top marginal tax rate, tax in NZ is very much a case of ‘what you get is what you see’.

NZ Aged Pension (‘superannuation’) is not means tested

You read that right.

The age of eligibility is likely to increase from 65 to 67 at some point, but there is little discussion about making it means tested in the foreseeable future.

Advice in NZ is less complex than Australia

For many of the reasons covered in this article, providing financial advice in NZ is less complex than providing advice in Australia – at least from a technical perspective.

A corollary of this is that it can be harder to point out to the clear dollar benefit you’ve provided clients – for example, by pointing out how much better off a client will be by implementing many super strategies. 

In a lot of ways, this makes it more important to focus on what is important when providing financial advice: working closely with clients; getting to know them as people; understanding their needs, their values, and their priorities; and tailoring a plan that helps them achieve their financial and lifestyle goals, and helps them manage their risks.

So, the heart of providing financial advice in NZ is the same as it is in Australia or any other country in the world.

However, the tools for helping clients to achieve their objectives and manage their risks can vary in various subtle and not-so-subtle ways. 

Sonnie Bailey would like to thank Catherine Jansen of Pursue Wealth for her contributions to this article. Sonnie operates Fairhaven Wealth in Christchurch.