Loss leader or game-changer? - the first zero-fee KiwiSaver fund

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There have been mixed reactions to NZ Funds' zero-fee KiwiSaver fund coming to market with some commentators saying it's a bold move while others say it's simply a "loss leader".

Friday, September 10th 2021, 6:00AM 2 Comments

by Matthew Martin

Last week, Good Returns reported that the Auckland-based manager has launched a no-cost balanced fund in its KiwiSaver scheme to complement its range of active funds.

The new zero-fee KiwiSaver fund will be solely distributed through financial advisers and NZ Funds' product disclosure statement says the fund "provides an entry-level option, which uses a passive investment approach to gain exposure to a balanced mix of income and growth assets".

It will have a 50:50 split between shares and bonds and will invest in index funds.

Interestingly, unlike most of the other major passive fund providers in the KiwiSaver market, it will be managed by a New Zealand-based investment team at NZ Funds.

However, Simplicity managing director Sam Stubbs was not so excited about the product saying it was probably a loss leader.

"With any financial product offered for 'free', you can assume you’ll get what you pay for.

"If it looks like a loss leader, and smells like a loss leader, it probably is," Stubbs says.

Four other financial industry commentators and KiwiSaver providers spoken to by Good Returns would not go on the record about the zero-fees offer but all said that zero-fee funds were definitely something different and out of the ordinary.

Good Returns readers also had their says about the fund offering.

"Bold move from NZ Funds! Congratulations on leading the market with this initiative, I assume it will be a 'loss leader' for the manager," one reader said.

"I really like this NZ Funds initiative - which clearly demonstrates that those who compete in price will also be outdone.

"My only concern is with investors being made aware of any counter-party risks that are associated with stock lending to pay the manager.

"Whilst these are marginal they exist - and as they say - there’s no such thing as a free lunch," another reader said.

NZ Funds chief executive Michael Lang says the firm has a longstanding belief in the value of financial advice.

He says the fund is not a loss leader as it is part of its group of KiwiSaver funds and the company does not charge fees on its actively-managed KiwiSaver accounts held by under-18s, to encourage New Zealanders to start saving for their retirement as early as possible.

"A conversation with an adviser also means clients are more likely to end up in the best KiwiSaver fund for their age and life stage."

Lang says this is an opportunity to educate and support Kiwis on the options available to them, "so they get the best possible long-term financial outcomes."

Tags: fees KiwiSaver NZ Funds Sam Stubbs

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