KiwiSaver shake up not just about fees

Head of sales and marketing at Mint Asset Management, David Boyle, says once the new default providers conclude their celebrations, it will be time to get to work.

Friday, May 14th 2021, 2:47PM

by Staff reporters

David Boyle.

“With all the posturing that will most likely come from the new default provider members...whatever they said they were going to do, they need to now deliver.

"Not just around fees, but communicating with their members.

“My personal view is that this is going to be a much harder task than they had previously considered.”

The issue of communication is central to Boyle’s ethos around KiwiSaver, and a task he hopes the new providers will take seriously.

“Regardless of who the default managers are, communication to those default members has to be central to the transition. If nothing else it might get those default members to look at where they are and where they are going.”

Boyle was not surprised by the government’s support of low-fee providers.

“When you consider that the RFP put out to default providers last year had 60 per cent of the scoring based on fees, there are no surprises with that.”

What did raise eyebrows for Boyle was the way heavy-hitting incumbents like ASB and ANZ have been so readily kicked to the curb.

“A big part of this decision is not just the fees, but the way that providers connect with default customers.

"On that basis, the benefit that the new providers have is what we lobbied for from the beginning of KiwiSaver, to have a balanced fund as the default.

“The onus on the provider to shift their clients from default conservative to balanced, probably won’t be there as much now. The real key to success is how providers manage communications when markets go down.”

Chris Douglas (pictured below), principal of MyFiduciary, was also surprised at the government's decision to drop so many default providers.

“I thought there would be some compromises made.

“But there have been no compromises here. The government has stuck to their process and I think it is good to see.”

Douglas says while fees have grabbed most of the attention the fact that all of the providers (apart from Westpac) are New Zealand owned should also be noted.

Looking to the future, Douglas is hopeful this shakeup will promote positive changes to KiwiSaver across the board.

“How deep are these funds going to go on SRI? How is their process going to work? It will be interesting to see if we have fees come down across the portfolios.”

According to Douglas, the challenge now is for the government to implement this transition in a smooth and satisfactory manner.

“The big question is how this is going to work. You have big changes to the default providers and you have the move from a conservative to a balanced portfolio.

"These changes will need to be efficient as possible to make sure investors don’t miss out.”

The Financial Markets Authority (FMA) says the announcement shows that value for money and fees have been a focus of the regulator’s oversight of KiwiSaver for some time.

FMA chief executive Rob Everett (pictured below) says the new default provider settings offer a range of benefits to default investors, including improved outcomes from a balanced fund, lower fees, and services.

"There is also an obligation to exclude fossil fuel production and illegal weapons from the default funds. Altogether, this is a fair representation of value for money for existing and new default members, sending a strong signal to the market,” he says.

“We will be working closely with supervisors of current and new default managers to ensure a smooth and robust transition process for affected members and their balances.

"We’ll continue to monitor the current default providers to ensure they act in the best interests of members through the transition.”

The FMA’s primary role in KiwiSaver is to license, monitor and supervise all KiwiSaver providers, including default providers, and their supervisors.

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Tags: Chris Douglas David Boyle default funds FMA KiwiSaver Rob Everett