Insights for consumers and participants
KiwiSaver providers can sell your investments to cover their fees where that process is clearly disclosed in the terms of their scheme documents. While a heads up would be a good customer service practice, FSCL cannot require it where the provider has acted according to their terms.
What happened?
Ben joined a KiwiSaver scheme offering investors the option to select their own securities, including shares in specific listed companies. Ben chose the securities he wanted. From time to time, there was very little cash balance in Ben’s account. When the KiwiSaver provider’s monthly management fees became due, and there was not enough cash available, Ben’s KiwiSaver provider sold small amounts of his securities to cover their fees.
Ben complained that the provider should have taken steps to warn him when his cash balance became too low and obtain his approval before selling any of his investments. Ben also discovered that the provider had sold small amounts of his securities previously on multiple occasions. The repeated sales generated multiple additional brokerage costs, foreign exchange costs, and market losses that Ben wanted compensation from his KiwiSaver provider for these costs.
What was the issue?
The main issue was about the KiwiSaver provider’s service, and, in particular, whether the KiwiSaver provider acted unfairly by selling investments to recover management fees without first notifying Ben or obtaining his consent.
What did FSCL find?
When Ben joined the scheme, he confirmed that he had received and accepted the scheme’s disclosure documents. Those documents clearly explained that management fees would be recovered monthly from available cash in his account and, if there was not enough cash, by selling investments within the portfolio. The KiwiSaver provider had therefore done exactly what the scheme documents said they could do.
We accepted that selling investments more frequently would increase costs compared with less frequent sales.
We also accepted that notifying customers before selling investments would not appear to be impractical, and was a practice commonly seen elsewhere in the financial services industry. For that reason, we suggested that the KiwiSaver provider could consider introducing notifications as part of their service offering. However, that was a commercial decision for the provider, not something FSCL could require.
We considered it important that the provider had clearly disclosed their fee recovery process and had reserved the right to sell investments when cash balances were insufficient. While alternative approaches may have been more customer-focused, we could not rewrite the parties’ contract or require the provider to adopt different business practices.
Outcome
We concluded that it was fair for the KiwiSaver provider to recover their management fees by selling Ben’s investments without notice. The provider’s right to do that was clearly disclosed in the scheme documents, which Ben had agreed to.
