The gentle decline in AFA numbers (see this story) now down to 1,842, after a net loss of 31 advisers may not sound like much. But this must be set against the growth of the financial services industry. To take two indicators: in September KiwiSaver funds were just nudging $30 billion up from around $26 billion last year. Insurance regularly ticks up 4% to 5% annual premium growth. Financial services growth is big, really big, and yet the number of advisers is static at best or falling slightly.
So what takes up the slack? No-advice sales.
The growth of no-advice sales accounts for most of the growth in the market over the last ten years, and to judge by these numbers, it will continue to grow. That is contrary to the stated aims of organisations like Sorted and the FMA it seems that for more and more New Zealanders their financial choices will be made without advice. I am worried about that. I certainly do not want to ban or restrict no-advice sales – they are an important part of the market – but I am worried about the effect that no advice sales can have on New Zealanders.
I am also worried about the idea of a ‘no-advice’ sale for a switch from one KiwiSaver scheme to another. See this story. Unlike many products where multiple purchases can be made (I can have several insurance policies, credit cards, or savings accounts) you are meant to only have one KiwiSaver scheme. In order for a sale to be made to someone who already has one a switch must be made. It is surely hard to claim that disposal of the original contract is not part of the conversation. Are consumers being warned, as per the FMA’s replacement guidelines, that no review of the current scheme is being made and they may lose benefits that the salesperson is unaware of.
Speaking with a friend this morning he pointed out that given most KiwiSaver members are saving for a goal that is decades away a much higher proportion of their funds should be in growth assets. The problem is that such asset allocation usually requires advice to establish risk tolerance – or an unusually brave and self-motivated client.
I could illustrate a similar point using ‘any occupation’ definitions common in income protection products sold with no advice.
I could highlight the issue of no advice around break fees and guarantees in the home loan market.
Advice is a crucial part of the mix in a future where more New Zealanders take better financial choices for the benefit of their families and society as a whole.