KiwiSaver fees: Paying for performance
Pricier KiwiSaver funds are delivering better returns for their members, the country’s biggest provider says.
Friday, October 13th 2017, 6:00AM 
3 Comments
In a recent whitepaper, ANZ said a growing focus on fees, particularly from younger investors, was a concern.
ANZ general manager wealth and products Ana-Marie Lockyer said instead of focusing on finding the lowest fees possible, KiwiSaver members should look at what returns were being generated, after fees were taken out.
“Net returns – that’s what grows one’s retirement balance,” she said. “We absolutely believe active management can add value over time.”
She said, after 10 years of the KiwiSaver scheme, there was enough data around to prove that active managers were delivering results for the fees they charged.
She said there was 247bps difference in returns after fees between the best and poorest performing growth funds over that decade, 82bps between the default funds and 164bps between the balanced funds.
“We know there are actively managed default funds and passively managed default funds...remember 100bps gives you a $100,000 increase in your retirement outcomes.”
She said fees were one “lever” that members should consider but the discussion needed to mature beyond the idea that cheap was always better. Consumers should have choice and understand the different costs incurred by different funds with different levels of service, she said.
"We fully support improving disclosure of fees and look forward to full transparency next year across all providers, however don't believe KiwiSaver fees should be prescriptively regulated in recognition that providers manage investments differently and offer varying levels of services and tools. What is important it that alongside the fees that providers articulate what members will receive for their fees and we would encourage continued education for members about returns after fees given that will drive retirement outcomes."
There was a continuing need for financial advisers to offer advice on KiwiSaver, she said. “KiwiSaver is one of many ways people are saving for their futures. Advisers are in a great position.”
ANZ had seen the best results in KiwiSaver from advised customers who were meeting someone face-to-face to discuss their accounts, she said. “They’re making the right decisions for them, helping build their balances.”
When ANZ asked its KiwiSaver customers who were dealing the bank directly whether they wanted personalised advice, only three out of 3000 took up the offer.
Lockyer said that was disappointing but she hoped that when balances grew, so too would clients’ interest in advice.
“All providers have an obligation to ensure advice is available.”
To read the full transcript, click here
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I feel embarrassed to be a citizen of this country when such salacious and public acts of self-interest, at the expense of the people they should be representing, are being perpetrated on the citizens of this country with no apparent opposition (political or via the media). The corruption in this country is (becoming?) insidious and at the highest of levels. I am starting to think we are fortunate to have MMP, where the power of the corrupt is diluted to some extent by the compromises of forming a minority Government.
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• “We absolutely believe active management can add value over time”. That’s nice but academics around the world think differently as do institutional investors. The fact is that “the more you pay, the less you get”. Ms Lockyer “believes” that active can add value but presents no data.
• Ms Lockyer “looks forward to full transparency next year” as regards fees but conveniently forgets that transaction costs won’t be disclosed and thus fees will continue to be materially understated.
• Ms Lockyer says “all providers have an obligation to ensure advice is available” on KiwiSaver but limits “advice” in the ANZ’s case to just recommending ANZ’s KiwiSaver. This isn’t “advice” it is “sales” and in my opinion and that of the FCA this sort of thing is a business decision taken to maximise the profitability of the organisation at the expense of the customer.
• Ms Lockyer says that the discussion on fees “needed to mature beyond the idea that cheap was always better”. Unfortunately for high cost active managers, and remember that not all active managers are high cost, the discussion has “matured” and the result is the finding that most active managers underperform after fees. Institutional investors around the world are presumably reasonably “mature” and it is institutional investors that have led the charge from active to passive. The NZ Super Fund is run by reasonably “mature” people and virtually all their international equity portfolio is invested passively.
Ms Lockyer, if this was an academic paper you would have got a “fail”. Time to try harder.