Advice key to super success

Financial advice will play a critical role in determining the overall effectiveness of New Zealand’s newly implemented universal retirement savings system, Kiwi Saver, according to the head of the Investment and Financial Services Association Australia (IFSA).

Speaking at the Brooks Breakfast in Rotorua New Zealand last week, IFSA chief executive officer Richard Gilbert said Kiwi Saver will need to ensure that a sound financial advice system underpins the scheme in order for it to succeed.

“If Australian experience is a guide, in the absence of other tax preferred savings vehicles, within the medium term, my expectation is that the Kiwi Saver will become the preferred saving and investment vehicle. And when balances become significant, advice will be needed, and needed in spades,” Gilbert said.

The Kiwi Saver superannuation savings system was officially adopted by New Zealand on July 1, 2007. The scheme features a solid contributions base, with optional structure of either 4 or 8 per cent and will give the employee and employer the additional option of contributing further tax dollars into a Kiwi Saver account.

The scheme shares many similarities with Australia’s own super regime, as both funnel contributions from the workplace into retirement savings accounts facilitated by the private sector.

Considering these similarities, Gilbert emphasised the financial planner shortage in Australia where there has been only a modest expansion in numbers of advisers but massive increases in private wealth, and called on New Zealand to prepare for the coming need.

“The demand for financial planning has exploded . . . seek.com.au data shows there are currently 5,200 jobs in financial planning firms, and this number has increased four-fold since February,” he said.

“So my entreaty is start planning the ways and means of offering scaleable and affordable advice with Kiwi Saver — you might need to offer some loss leading services in the early years, but in time the more profitable accounts will come. Clearly in coming years there will be a virtually insatiable appetite for good advice.”

Drawing from his experience with Australia’s super regime, Gilbert also discussed the need for an effective customer disputes resolution system, and to be able to track customer sentiment on issues like quality of advice, investor materials, level of fees and the general reputation of the industry.