AMP KiwiSaver members should expect major fee reduction

Chris Douglas of My Fiduciary has said that AMP KiwiSaver members who have seen their funds switch from active to passive should expect a major reduction in fees.

Wednesday, October 21st 2020, 6:53AM 6 Comments

by Daniel Smith

When AMP New Zealand Wealth Management (NZWM) announced yesterday that their KiwiSaver funds will be switching from active to passive funds, many across the industry were taken by surprise.

The move has seen the KiwiSaver scheme and its 220,000 members switching to a passive investment structure. The management of which will no longer be handled by AMP NZWM’s sister company AMP Capital and will now be managed by US-based fund manager BlackRock Investment Management.

Chris Douglas, principal at MyFiduciary told Good Returns that the move was “not a change that we were expecting.”

Douglas says that while this is a massive change “at the end of the day this is about asset allocation. That’s what is going to be driving returns going forward. The underlying active management within the sector funds have been reasonably middling anyway. The multi-manager approach is ultimately index-like. There shouldn’t be too much wholesale change in what an investor should expect.”

However, Douglas says that one place in which investors should expect change is alongside the fee structure. “Now I know AMP has a decent timeline to manage this transition. But that being said, investors should expect a serious material reduction in their fees as a result of this change.”

The only mention of a fee change from AMP is when AMP Wealth Management acting chief executive Jeff Ruscoe said in their release that soon to follow this announcement will be a thorough “repricing of funds within our AMP KiwiSaver Scheme.”

Douglas said that, “We’ve seen fee reduction from the likes of BNZ when they moved to passive management across the core part of their portfolio holdings but not all of their portfolios. With AMP I would hope that they would reduce their fees even more than what we have seen from BNZ.”

“I would expect their fees to drop down to 0.5% especially when you consider the size of AMP and what they should be able to offer their members.”

The dynamic shift in the behaviour of KiwiSaver portfolios is something that Douglas thinks is only going to become more common. “No longer can KiwiSaver providers sit in no man's land, charging high fees for index tracking products."

"You’ve either got to take on a fair degree of active risk and charge for that, or you offer a low cost proposition that can give them a fair value for money.

“We’ve seen this happen with BNZ and other providers. AMP’s move is certainly not the start of this trend but it does seem likely that this is a direction that larger parts of the industry will start looking to move.”

Tags: Active v Passive AMP Capital AMP Wealth Management Blackrock KiwiSaver

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Comments from our readers

On 21 October 2020 at 9:56 am Davidvs said:

It seems if AMP is genuinely interested in delivering 'value for money' to their KiwiSaver clients then they should at least match the fee level of Simplicity which implies a near 75% reduction in their KiwiSaver funds ongoing fees. Be interested to see if that happens.

On 21 October 2020 at 10:13 am Gordon Gecko said:

There are so many snouts in the trough here. I looked at the NZRT PDS, and the balanced fund has estimated funds charges of 2.92%. The investment component of this is only 0.50%, so even if AMP reduce their investment cost, it is the massive Admin, Service,and Costs that make this obscene. Even if they get their investment cost to say 0.15% the punter will still be hit with over 2.5%... plus their member fees. Can the FMA please tell us this is a reasonable fee/cost structure.

On 21 October 2020 at 1:48 pm Pragmatic said:

Sadly I agree with Gordon Gecko’s sentiment, that it is unlikely that AMP will pass on any significant savings to end-investors, preferring to reward themselves & other stakeholders with any windfalls.

Unfortunately we’re looking at an entity who has demonstrated “form” when asked to put client interests first...

The ultimate solution is for AMP to accelerate their inevitable demise in the hope that any acquirer of their KiwiSaver business can change behaviors.

On 21 October 2020 at 1:52 pm John Milner said:

I agree that AMP's fees must reduce substantially. However, Davidvs suggesting AMP should match Simplicity which is a charity is a bit of a stretch.

On 22 October 2020 at 6:33 am andy bagnall said:

How does AMP still have a licence to operate?

Nothing wrong with moving to passive but the fees are just too high.

Funny how they announce the asset allocation change but still keep the fees at the very high level.

@Gecko hits the nail on the head. The reduction in investment management fees looks low and it is all the other fat (high fees) the customers have to wear.

On 22 October 2020 at 8:00 am smitty said:

Naturally AMP are reviewing their business in NZ, given all the negative press, the continual hemorrhaging of funds, but I think the only thing driving this change in asset allocation, and hopefully a huge fee reduction, is the review of the default providers. The prospect of slimming down the default providers is proving to be the catalyst for the current incumbents to make some changes.

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