Financial confusion costing Kiwis
Basic investor information put out by KiwiSaver providers leaves Kiwis struggling to figure out their financial future, according to an AUT study.
Research by AUT Business School finance academics Associate Professor Aaron Gilbert and Dr Ayesha Scott found more than half the people surveyed didn’t think there was nearly enough information in the KiwiSaver product disclosure statements – a key source of information for KiwiSavers – to make an investment decision. Over half indicated they would not use a product disclosure statement to make a decision about KiwiSaver.
The AUT study asked 48 New Zealanders for their thoughts on the usability and readability of a real, but anonymised, product disclosure statement. At just 6000 words or 12 pages long, the product disclosure statements are required by law to be up-to-date and understandable to everyday investors.
“With such a high proportion of people we spoke to not finding all the information they needed in the product disclosure statements it really leads to the question of where they go looking for that information. Is it a reliable, credible source that they can trust? And does that source know what they talking about?” says report co-author Scott.
The pair found investors struggled to compare information across providers because common KiwiSaver information and fund-specific details were intertwined, making it hard to distinguish the unique offering of a provider versus what is common across all KiwiSaver providers.
More generally, a number of people in the focus groups were unclear about why KiwiSaver exists at all, with many in the survey saying the product disclosure statements emphasis risk levels without explaining the benefits.
“We were a little shocked by the lack of trust and myths around KiwiSaver. Our participants knew KiwiSaver was important, but they did not always know why,” says Gilbert.
“There is an appetite for information they can trust. Instinctively people know providers are selling them a product and this means they aren’t independent. Investors want to make good decisions, but have no idea how to go about that or where they can find independent information. We encourage anyone feeling this way to go to the sorted.org.nz website,” he says.
KiwiSavers need access to information when they join KiwiSaver in order to choose the right investment rate, fund type and provider. As a long-term investment it is often necessary people revisit their KiwiSaver decisions as their personal circumstances and lifestyles change. The information provided in investor documents, such as product disclosure statements, should help with this process, but the study found this was not the case.
“We know many KiwiSaver investors are not engaged with their KiwiSaver, and we should be asking why. How can we reach all New Zealanders?” says Scott.
She says hard decisions based on information that is difficult to understand leads to disengagement and avoidance of decision-making altogether.
“We find that information acts as a barrier to engagement. KiwiSaver investors need access to information in a form that is easy to understand, from a source they can trust, to make an informed decisions about their retirement savings.”
The What Kiwis’ Want: KiwiSaver product disclosure statements report suggests a number of changes be made to investor information:
- Basic information relevant to all KiwiSaver funds in a separate stand-alone document prepared by an independent organisation, as opposed to fund providers.
- The stand-alone document containing a glossary of standard terms.
- A short quiz at the beginning of the product disclosure statement to gauge the appropriate fund type for an investor.
- Documents organised by fund type rather than topic to allow for easy comparison.
- Disclosure information split into two parts –general information about KiwiSaver common to all providers and provider-specific information prepared by a third party.
- Document formatting with accessibility for all readers to the forefront.
The research relates to KiwiSaver documents specifically but the recommendations from the report are relevant for financial disclosures more generally.
“Ultimately, investors need useful, relevant and easy-to-understand information from a source they trust. The Product Disclosure Statement can be improved to better address this need,” says Scott.
The latest report builds on the analysis in the 2017 AUT study, Short and Sweet or Just Short? The Readability of Product Disclosure Statements, which found KiwiSaver investors needed to be well educated to make sense of the product disclosure statements.