KiwiSaver providers can sell your investments to pay fees, dispute scheme rules

KiwiSaver providers are permitted to sell members' investments to fund their fees, as long as this process is explicitly disclosed to members, according to Financial Services Complaints Ltd (FSCL). FSCL, a disputes resolution scheme for the financial services sector, recently addressed a case involving a man who complained about his KiwiSaver scheme.

The man had the option to choose his investments, which included shares in specific listed companies, and occasionally, insufficient cash was available in his account to cover monthly management fees. When the provider's fees were due, they sold small amounts of his investments to meet the costs. The man discovered that this had happened more than once and argued that he should have been informed of this possibility and asked for approval before the sales occurred.

FSCL confirmed that the man had accepted the scheme's disclosure documents when he signed up, which stated that management fees would be recovered from available cash and, if needed, by selling investments. FSCL accepted that selling investments more frequently would increase costs compared to less frequent sales but also noted that notifying customers before selling investments was not impractical and was common in the financial services industry.

While FSCL considered it important that the provider had clearly disclosed their fee recovery process, they could not require the provider to adopt different business practices or rewrite the contract. FSCL stated that it was fair for the provider to recover its management fees in this manner. Experts have mentioned that this issue has not arisen in practice for some providers, as they monitor low cash balances and engage with advisers to address the situation before any sale of investments becomes necessary.