[Weekly Wrap] The great debate on fees

Fund manager performance fees were a hot topic again this week; meanwhile, the price Fisher Funds paid to buy Huljich KiwiSaver was finally revealed.

Friday, January 27th 2012, 1:29PM

by Niko Kloeten

Last week's story about a Harbour Asset Management survey of performance fees for equity funds drew plenty of response, including from Pathfinder's Paul Brownsey, who questioned why fund managers need performance fees at all.

According to Brownsey, performance fees pay fund managers for doing what they are supposed to do anyway - try to get the best returns for their clients and outperform their competitors. He said he wouldn't mind performance fees if fund managers paid investors when their funds underperformed.

Tower Investments chief executive Sam Stubbs also weighed in on the issue, saying fund managers should be prepared to accept lower income in bad years if they want to cash in during the good years. Charging a performance fee to keep the headline base management fee low is wrong, he said.

Stubbs also had a message for the media, which had been "mischievous" in its reporting on KiwiSaver fees, which he said are generally very low and a lot lower than for equivalent funds in Australia.

This low-fee environment means KiwiSaver businesses need scale to be profitable. Fisher Funds boosted its size with the purchase of Huljich KiwiSaver last year and Good Returns revealed today that Fisher paid $20.9 million for the scheme.

Moving from fund management to insurance, Sovereign had a message this week for advisers complaining about cheaper premiums on The Warehouse website: harden up and cut your commission to compete.

It was news to us that advisers could chose "variable" commissions, that no doubt is something for another story.

The advice came in response to concerns raised by an adviser who contacted Good Returns to point out pricing differences between premiums charged through advisers and through The Warehouse. According to the adviser's calculations, up to $250,000 of life cover you would have to rebate your entire commission to compete on price.

As they say advice comes at a price.

On the finance company front, three of the five individuals facing SFO charges over the collapse of South Canterbury Finance have now been named. Speculation still swirls over who the other two are.

This week also saw the latest OCR announcement, with Reserve Bank governor Dr Alan Bollard unsurprisingly holding the rate at 2.50%. However, the bigger news was the US Federal Reserve's commitment to keep interest rates low until 2015.

Confident interest rates will stay low for a while yet, a number of banks have cut their mortgage rates.

The two big people items this week were the naming of a new chief executive at Asteron and the departure of key people, including the CEO, at The Co-operative Bank. All the details in the People section.

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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KiwiSaver mismatch a 'huge challenge' for advisers »

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