Fund managers to be forced to act in best interests of KiwiSaver investors

Commerce Minister Simon Power has announced fund managers of retail KiwiSaver schemes will be forced to act in the best interest of investors and be primarily responsible for the accuracy of their prospectuses, rather than trustees. "It's become clear that the regulatory regime around KiwiSaver, in which more than one million New Zealanders have invested nearly NZ$5 billion, needs improvement," Power said in an awards dinner speech to The Institute of Financial Professionals New Zealand (INFINZ). “Mum and dad investors need to be certain that KiwiSaver is well governed and that those managing their hard-earned savings will be held accountable if there is wrong-doing," Power said. “Currently KiwiSaver trustees are technically the “issuer” of the KiwiSaver scheme for the purpose of the Securities Act. Fund managers have few direct duties to investors, and significantly less liability for misleading statements than the trustee.” The announcement follows controversy around fund performance figures issued by Huljich Funds Management. The changes will ensure trustees are responsible for supervising managers and making sure they comply with trust deeds and their other responsibilities. Trustees will also be supervised by the Financial Markets Authority, which will become the new securities market regulator. Managers will have to regularly provide ongoing information to the public and regulators regarding their performance, their fees, and what they have invested in. “It's important the public can rely on the information published by KiwiSaver funds without wondering if the figures have been doctored in some way," Power adi. "This sort of information is provided to the regulator for the six default funds, and I can see no reason why non-default funds should be subject to different reporting requirements." A pre-prepared questions and answers briefing from Power's office is republished below:

How will the changes to the role of KiwiSaver trustees be implemented? The Securities Act will be changed to provide that the manager of a retail KiwiSaver scheme is the “issuer”. This will mean that the manager is primarily responsible for false and misleading statements made in prospectuses, investment statements, and advertisements, rather than trustees as at present. The manager will also owe a legal duty of care to investors, and will be required to act in their interests. This change also enables retail KiwiSaver schemes to be brought within the model of the Securities Trustees and Statutory Supervisors Bill currently before the House. Under this model, all retail KiwiSaver schemes will be required to operate under a licence set by the FMA. The trustees will continue to have obligations to investors, and so will the manager. Is this much different to the current situation? Yes. The changes will bring the regulation of trustees of retail KiwiSaver schemes into line with the new regime that will apply for other types of managed funds. At present, almost anyone can be a trustee of a KiwiSaver scheme. The only restrictions are that one of the trustees must be “independent”, except for default funds which must use one of the trustee corporations. The trustee licensing regime significantly strengthens the oversight of trustees. What happens to non-retail KiwiSaver schemes and other superannuation schemes At this stage, the changes will not apply to non-retail KiwiSaver schemes, ie employer-based and some other vocational based schemes, or non-KiwiSaver superannuation schemes. These schemes are not quite the same as retail schemes that have been established by a fund manager who appoints a trustee to act as a supervisor. Non-retail KiwiSaver schemes represent only around 2% of the KiwiSaver market. However, the Government will consider bringing all other superannuation schemes within the trustee supervisory model as part of the wider review of securities law. What will the reporting obligation consist of? The details of what must go in periodic public reports and the timing of them will be set out in regulations made under the Securities Act. These requirements will be based on international best practice, and will ensure that returns, fees and assets are reported in a consistent and comparable manner.