Ratings tool criticised
A research firm that hands out star ratings to KiwiSaver schemes has been criticised for its fee-focused approach that, according to one provider, unfairly favours the banks.
Tuesday, March 5th 2013, 6:00AM 
13 Comments
by Niko Kloeten
Grosvenor head of marketing and business services Andrew Lendnal has questioned the methodology of Canstar, a research firm that rates a number of other financial products including home loans, KiwiSaver schemes, term deposits and credit cards.
Canstar bases 70% of its KiwiSaver ratings on fees, with the remaining 30% on features such as investment options, account access and communication.
ASB and Superlife both received five-star ratings in all three categories (conservative, balanced and growth), while the award-winning Milford Asset Management scored only three stars. Grosvenor’s funds were awarded two stars.
Lendnal said the value of the survey was minimal because of its heavy focus on the fee aspect, with factors such as fund performance ignored.
“The analysis they do is based on fee structures… if you are ASB yes you will have cheap fees and you’ll be right at the top.”
Canstar New Zealand general manager Derek Bonnar said: “While performance is not guaranteed, fees are known and do have an impact on the final retirement benefit of KiwiSavers. A small difference in fees can have a substantial difference on the final retirement savings of the individual investor.”
Canstar’s doesn’t measure fund outperformance, although it looks out for persistent underperformance as this can be an “indicator of broader management or systemic issues which may be impacting the investment performance,” Bonnar said.
“We have taken the decision not to make a judgement on the sustainability of investment returns,” he said.
“While we recognise that some fund managers have outperformed the market, there is a wide range of research which indicates that the majority of fund managers cannot persistently outperform a benchmark over the long term i.e. 10-plus years.
“Given that KiwiSaver is not only a long-term investment but a lifetime investment, consumers cannot reasonably rely upon current top performers sustaining that position.”
Diversified director Norman Stacey, who manages the Law Retirement KiwiSaver Scheme which received a one-star rating, said he wasn’t familiar with Canstar and wasn’t aware of his scheme’s low rating.
But he said the proliferation of different ratings systems with different methodologies could cause confusion for investors.
“It must be hugely confusing; everyone claims to be fund manager of the year.”
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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Comments from our readers
a) not a lot of intelligence or analysis goes into these ratings
b) the agency that presents these awards then charges sucker firms five figure sums to promote them.
c) the public has no idea what the gong is for or how it is awarded. They just see this thing which appears to give the scheme credibility.
Frankly they are a joke.
Most investors would happily pay a premium for net returns that are in line with their expectations (ie: the risk premium).
The problem with some studies in this area, is that they focus on the whole universe of funds available, without screening out those that are most interested in managing their business risk in preference to delivering returns.
That may be true but it ignores the fact, rehearsed by the Economist Magazine, the Financial Times, the FSA blah blah blah that fees impact returns. I must say that I do agree with your last comment – that if you screen out all those fund managers that underperform you will get a very good result for fund manager performance relative to an index! Reminds me of a female fund manager who was quoted not so long ago as saying that her portfolios would have had a very good year had they not owned a few stocks which went down! This really is a fun industry to be in! Regards Brent
It did what it said on the label - when I opened it it was wine. But it wasn't very nice.
A bit like some of these fund ratings and awards, really.
Of course everyone is interested in after fee returns but common sense also tells us we only know this after the fact. i think you find that the fund manager who is going to deliver superior after fee returns is a bit difficult to select beforehand. Unless that is you can actually pick the ones who look after their own interests first, are there any left after that process?
If you pay peanuts, you get monkeys!
A slightly better net return over many years can also make a huge difference!
The best starting point is to eliminate those Managers who have failed to deliver. I reckon that Brent Sheather could give you a hand there... as its the majority of Funds that are on offer in the NZ industry (apologies to the handful that are delivering). Next - ensure that the Manager has a vested interest in delivering your success... or to put it another way: is not asset gathering, or planning to bail when they've attracted enough FUA.
The last bit, is to keep an eye on them. Most quality Managers will cap their FUA, and then go to great lengths to ensure that their clients are aware of their actions.
Hope that helps - as it's comments like "....with the benefit of hindsight..." that ignore the robust capabilities that are available.
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