Research house disagrees with Consumer

Consumer claims in its recent article Savings Scandal: Where has your money gone?, that investors would have been better off leaving their money in the bank accounts over the past 10 years, as opposed to investing in super funds.

It says this isn’t just because the markets have had a poor patch. Rather "fees are at the heart of the problem."

"While it is not always easy to see, fund management companies take big fees even when the fund’s earnings aren’t enough to cover them. This means fees and expenses can eat into your savings," Consumer says.

FundSource executive chairman David van Schaardenburg says although his company provided the data for Consumer’s article it didn’t have any input into the project.

Van Schaardenburg is critical of the article saying that he doesn’t agree with the findings.

He says the survey’s sample size is small and not particularly representative of the managed fund industry. He also says that FundSource (formerly IPAC) hadn’t recommended any of these funds, and that some of them had high front end fees.

"We don’t like funds with high front loaded fees," he says.

Van Schaardenburg suggests that because these funds weren’t recommended it is unlikely financial advisers sold them. Rather these are the types of fund which had been sold by tied agents and people associated with the fund provider.

"People who put their money into these funds have in a way failed themselves by not getting the right advice."

ING managing director Paul Fyfe is critical of the time frame used. He says that if the period is changed to nine or 11 years, as opposed to 10, or even if the start and finish dates are moved a couple of months the results would be quite different.

"The 10-year period to 29 February 2004 was one of the most volatile in investment history," Fyfe says.

"However, in addition, the chosen period coincides conveniently with the beginning of a sequence of nine consecutive interest rate tightenings (totalling 300 basis points, or 3%) by the US Federal Reserve."

Fyfe says the survey also uses a lump sum investment, as opposed to drip-feeding money into a fund as is normally the case with diversified funds.

Likewise Tower does not agree with many of the claims made in the article.

"We believe the Consumer article is not ‘balanced’ at all - it does not compare apples with apples sensibly."

"On the subject of fees we argue that fees are set at a rate that reflects product delivery costs and expected demand in a very competitive environment. Consumers always prefer lower prices, other things equal, but the highly competitive market will ensure that excessive fees do not endure."

Tower also makes the point that many of the funds profiled have been in the market for 10 years or more and that "newer products have been designed to reflect both the changing marketplace and the changing needs of New Zealand savers."

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