The FMA has published a consultation paper setting out its proposed guidance on KiwiSaver fees. The paper is open for public consultation for six weeks.
The proposed guidance sets out the FMA’s regulatory approach to the KiwiSaver Act’s requirement that KiwiSaver fees not be unreasonable. It sets out that fees charged to members need to be regularly reviewed to ensure that members are getting value for money.
An FMA statement accompanying the guidance states that, “despite our expectation of competitive pressure on fees over recent years, there has been very little shift in fees when fees are weighted by the amount of dollars invested in the fund”.
“The FMA has repeated that we expect average fees to reduce as funds under management increase, based on the assumption that marginal costs for each additional dollar invested are low. This has not occurred in fixed dollar terms, with only some minor movement in the percentage fees on offer to investors.”
Examples shown where fees should be expected to reduce, include:
· when funds under management increase and fixed costs reduce due to economies of scale
· a shift from active to passive investment management
· when third party manager costs have fallen
The proposed guidance also points to the variety of regulatory tools the FMA may use to monitor and enforce the relevant obligations. Including a “stop order” which could prevent a fund the FMA saw as charging unreasonable fees from advertising or gaining new members. An example of the hard line that will be taken by the regulator if the proposed guidelines are not adhered to.
Consultation closes on December 14 and the FMA intends to review submissions and publish the final guidance note in early 2021.
Given that KiwiSaver investment management fees have grown by 164% between 2015 and 2020 while average KiwiSaver funds under management have grown c140%, increased review and vigilance of fund fees by the FMA is well overdue. The fund industry has lost the opportunity to avoid a heavier hand through the lack of action by some participants on this front.
On 3 November 2020 at 9:02 pm Gordon Gecko said:
October 10, 2019 in an article by Rob Stock on the Stuff website....
Instead of competition and economies of scale leading to fee cuts, KiwiSaver providers, including the big Australian banks which dominated the sector, collected combined fees of $479.8 million in the year to March 30 up from $418m the previous year, the FMA reported.
October 9, 2018 in an article by interest.co.nz's Gareth Vaughan..."Given a lack of fee reductions, the FMA says it's increasing its focus on increasing provider transparency, encouraging providers to explain why their fees are reasonable, encouraging price-conscious KiwiSaver members to find out if they are getting value for money, by using comparison tools, and encouraging members to focus on net returns after fees, plus services and communications, as a way to check value."
Isn't it time the FMA stopped letting the wind blow its tongue around and showed some spine and actually took some action?
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