Forget returns and fees, investors told

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New Zealand fund managers should be competing for KiwiSaver members on the basis of advice, transparency and service – not fees or returns, one manager says.

Tuesday, June 21st 2016, 6:00AM 2 Comments

by Susan Edmunds

Andreas Heuser

Treasury this month released a report by Andreas Heuser that showed neither fees nor returns were significant drawcards for KiwiSaver members – who were instead more swayed by bank marketing tactics.

Heuser suggested it could be a problem of consumers’ lack of knowledge and engagement.

“Providers do spend some time and effort educating members and complying with their regulatory obligations …However, any incentive to improve consumer knowledge levels is not aligned with the economic incentive to retain customers and revenue levels,” Heuser said.

“A significant lift in the level of consumer knowledge of the effect of fees and returns on the balance available at retirement would improve the discipline of the market on KiwiSaver providers.”

But David Beattie, of default provider Grosvenor, said KiwiSaver funds were already under legislated pressure to charge reasonable fees.

Beattie said that meant there was very little scope for the industry to create more expensive funds, even if it wanted to. KiwiSaver schemes had cheaper fees than Australian schemes and managed investment funds that were not part of KiwiSaver, he said.

Beattie said it was much more important for members to consider whether they were in the right fund, rather than worrying about the fee a provider charged.

People who should have been in a growth fund over their working lives and instead were in conservative funds could halve their potential returns and miss out on hundreds of thousands of dollars, he said, whereas the difference in fees between the cheapest and most expensive funds within a category might only be 0.6 percentage points.

“There are some cheap funds but the cheapest funds are cash or default. Does that mean they are the best fund to be in? Absolutely not.”

Henry Tongue, of Generate, agreed. “KiwiSaver members should ask themselves ‘what am I actually getting from my KiwiSaver fund?’”

He said members should look at their return after fees - even a pricier higher-growth fund should deliver a net return that was many times that of a more conservative fund.

Beattie said even returns were not a good thing to base the decision on because they were so variable.

“Managers have different styles and sometimes they work better in some cycles than in others but over time they all end up at about the same point. The thing that drives returns is the market, not what the managers do. It’s not good to compete on fees or returns. We should compete on service, transparency and quality of advice. That should be top of mind, there is still not enough of that, particularly transparency and advice.” 

Tongue said as balances grew, members could be expected to start making more informed choices.

Tags: Generate Grosvenor Financial Services KiwiSaver

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