FMA: Time to show what KiwiSaver members get for fees

KiwiSaver providers can expect pressure to show what value they're giving members, after an analysis prepared for the Financial Markets Authority showed they charge higher fees than comparable British funds.

Thursday, October 10th 2019, 6:00AM 6 Comments

The report, produced by actuaries MJW, was included with this year's KiwiSaver report.

It showed that New Zealand fees were higher than those of the UK across all fund types except the most conservative active funds.

KiwiSaver members were paying FUM-weighted average fees for active funds of 1.14% compared to 0.4% in Britain.

Passive funds sat at 0.67% and 0.29%, respectively.

Year-on-year the average fee charged to members increased 13%, to $132.26.

The FMA said, despite its expectation that there would be competitive pressure on fees, they had moved very little over the year to the end of March.

"We will be asking KiwiSaver providers to demonstrate how they are providing value for money for their members, which includes explaining their investment style and how higher fees are justified for services such as active fund management or responsible investment funds."

Director of regulation Liam Mason said, had the MJW report come back showing that New Zealand fees were cheaper than Britain's, the FMA might have decided to reduce the pressure with which it focused on fees.

"It hasn't said that."

He said providers' claims that fees had to be looked at in conjunction with services offered was valid.

The report has already prompted change – Westpac announced it would cut its monthly administration fee from $2.25 to $1 and reduce the management fee on its cash, default, conservative, moderate, balanced and growth funds by 0.1 percentage points.

Kiwi Wealth cut its fees the day after the period the FMA included in its report.

Richard Klipin, chief executive of the Financial Services Council, said there was a clear message in the report about fees.

"Fees are a work in progress but there is already considerable work going on across the industry to reduce fees and to deliver a greater range of fee structures and other product innovations to Kiwis.

“With the growth of the KiwiSaver market there is now real competition for consumers to choose from to ensure that they are getting value for money and that they are paying fees which reflect their needs."

The report showed that there was $1.04 billion in withdrawals by people aged over 65 in the year, and 23,000 of those people left the scheme.

He said that was a key area in which advisers could help.

Making their KiwiSaver savings last through retirement was a complex proposition.

That end of the KiwiSaver journey could be the most important for financial advisers to offer guidance in, he said.

Mason said it was positive that six out of the nine KiwiSaver default providers reported an increase in the percentage of members who had made an active choice on their investments.

“This has been a key focus for us over the past few years so it is great to see more than 52,000 default members made an active decision about their investment over the past year – up significantly from just over 28,000 in the prior year.”

Tags: FMA KiwiSaver MJW MJW Report

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Comments from our readers

On 10 October 2019 at 10:01 am w k said:

if fee is the sole criteria for investing in a fund, you "major on the minor, and minor on the major". if fund performance (ie roi) is not of the utmost importance, this only reveals your financial literacy.

put it this way, would you rather pay 0.05% fee on your portfolio and get net 2-3% roi, or pay a 3% fee and get a net 7-8% roi on your portfolio?

On 10 October 2019 at 11:07 am MPT Heretic said:

What is missing from the MJW analysis is comparative stats on the total FUM of the UK vs KiwiSaver funds. Scale efficiencies largely occur across the business not at an individual fund level. KiwiSaver totals NZ$57b, just 2 of the more than 400 UK funds had FUM of NZ$63b.

On 10 October 2019 at 12:10 pm Pragmatic said:

Whilst I agree with @WK's comments, its worth adding a bit more colour to the conversation.

Firstly - the net return to investors is the true test, with WK explaining this well.

However, I'm disappointed to learn that those NZ investors who chose passive Kiwisaver options are being charged 0.67% to do so. Depending on the objectives of the portfolio (ie: a passive conservative option is designed to achieved below market returns across major asset classes), then the total price should be in single digits.

On 10 October 2019 at 5:09 pm LNF said:

I think it is time for banks and insurance companies to ask the RBNZ and FMA to come and run their business, seeing that they have so much skill, knowledge and experience. Trouble is they would all go broke

On 11 October 2019 at 8:11 am w k said:

@pragmatic: thank you.
@lnf: for this reason, financial advisers exist.

i suggest it will be more productive to compare funds base on their performance, roi after deducting their fees. any fund that gives a roi over a given period (say, 5 years average) below the risks free rate should not be charging any fee at all. that's just my view.

On 12 October 2019 at 6:24 am henry Filth said:

As your typical mug punter, I quite like the idea of knowing what I'm getting for my money.

I find the idea of knowing just what my "Portfolio Servicing Fee" pays for, as opposed to my "Administration and Custodial Fee".

As well, of course, as the fee(s) I'm paying to the individual funds in my portfolio.

Surely it can't be that difficult - or should it be that embarrassing?

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