KiwiSaver pair warned by FMA over statements
Two KiwiSaver providers have been asked to change potentially misleading statements to investors or face court action by the Financial Markets Authority.
The threat arose from a review by the watchdog of 15 schemes' public offer documents, including investment statements, prospectuses, financial statements and other public information such as websites.
Other funds that have not been singled out were nevertheless found to be providing investors with confusing and uninformative explanations.
In some cases they were measuring the same returns two different ways or describing investment strategies in such vague terms, investors could not be expected to assess the risk.
In others the independent trustees of KiwiSaver schemes were found to be trying to shirk their responsibilities with inappropriate disclaimers.
The FMA refused to name the providers involved nor say what potential breaches it wanted fixed. It said it was currently a compliance matter and would not necessarily lead to court action.
"We are trying to get them to willingly comply with the changes we want to see made," said a spokesman.
If court action resulted the schemes would be publicly named at that point, he said.
Some funds in the hugely popular taxpayer-subsidised savings scheme volunteered to make changes after coming under FMA scrutiny.
The 15 schemes reviewed manage a combined $5 billion and represent 40 per cent of the KiwiSaver market.
In a report dated June 17, the FMA said it had looked at documents from a cross-section of providers and wrote to "a number" asking them to clarify disclosure matters.
"The key objective in our monitoring is to continue to promote high standards and increase public confidence in offer documents," says the report.
"During the course of this review, FMA wrote to a number of issuers to clarify certain disclosure matters."
"As a result, some issuers re-assessed the disclosures in their offer documents and volunteered to make improvements.
"In addition, FMA is currently in the process of taking action against two issuers due to non-compliance with securities legislation relating to potentially misleading statements in their offer documents."
The FMA is reviewing KiwiSaver disclosure ahead of a new regime to standardise reporting of investment returns and fees, making it easier for people to compare funds.
Starting in October, KiwiSaver providers will have to publish one comprehensive annual disclosure statement and four short quarterly reports.
The FMA noted some schemes would have to change their reporting to avoid confusing people, for example when returns were measuredly differently before and after the new requirements.
It has issued the industry with a general "please improve", after finding investors were sometimes being given confusing and inconsistent information.
For example, current securities regulations require disclosure of historical five-year investment returns but do not say how returns must be calculated, for example whether they must include fees and tax.
The FMA found schemes were using a range of methods, sometimes using two different methods for a single fund, changing methods between the website and prospectus.
Other concerns included:
Disclosure of risk being "too generic" with some schemes failing to properly explain such risks as not meeting benchmarks, managers making bad investment decisions, or exacerbating losses by using derivatives and gearing.
Describing key people managing investments as "experts" or "proven investment managers" without giving any information to substantiate their track record.
Giving investors such wide-ranging parameters for the percentage of their money that may go in bonds, cash, shares or properties, that the risk profile of their savings could theoretically be anywhere from a conservative to aggressive.
Risk profile questionnaires that differed between the website and investment statement, did not contain sufficient disclaimers, or guided investors to funds considerably more aggressive or conservative than their peers.
Lifestages products, which several big funds want people put in by default, failing to properly disclose the risk that the automatically-chosen fund would not suit a person's risk appetite or circumstances.
Trustee statements that carried inappropriate disclaimers saying the trustee had assumed the factual information contained in the prospectus and all information given to it by the manager was correct.
"In FMA's view these disclaimers are not aligned with how a trustee should conduct itself as a front-line regulator of a KiwiSaver scheme or a debt security and FMA has engaged with trustees concerning its expectations in this respect," said the report. "In our view, trustees should be doing sufficient work to satisfy themselves of the accuracy of the information provided by the manager to make the trustee statement without a disclaimer."