[The Wrap] Solving the KiwiSaver value for money equation

Sometimes when the regulator speaks it feels like a parent telling their children to tidy their room for the umpteenth time.

Saturday, October 2nd 2021, 9:19AM

Accompanying the Financial Markets Authority (FMA) annual review of KiwiSaver schemes we got the usual message about fees and "value for money."

The FMA said; "Our guidance said managers are expected to annually review their fees with their supervisors, and to take concrete steps if they find their fees are unreasonable and don’t represent value for money – by increasing their services, reducing fees, or both.

"Managers were told they must prove such reviews are happening, and our message that failure to do so could trigger a regulatory response was conveyed widely by significant media coverage."

It's hard not to disagree with the FMA when it says "...there is little justification for membership fees to be charged by investment managers who have achieved scale".

"So KiwiSaver schemes should move toward eliminating membership fees from their fee structures."

Coincidentally within 48 hours ANZ announced it was ditching its annual fees. How banks, and other large KiwiSaver providers, like this can justify these fees for over a decade is another one of those unfathomable issues, which just makes the bank look greedy.

A bit of back-of-the envelope maths (these days done on the calculator on one's phone) would suggest that charging 650,000 members $18 each a year would bring in a handy $11.7 million.

As a member of one of their schemes I get active management but not a lot else.

The FMA's other gripe is value for money. This one is a bit of a conundrum.

How does one quantify value for money from a reasonably invisible service where the provider is earning more every time my KiwiSaver balance goes up?

It would be interesting to be a fly on the wall when a manager sits down with its supervisor (formerly trustee company) to determine value for money.

Value for money seems to be about what do we think is a fair price for something.

In the real world consumers decide if they are getting value for money and vote with their feet.

KiwiSaver is great as there are so many options. It's not like flying domestically where, if you are like me and live in Rotorua, have no choice and just have to suck up the fares on offer.

Supermarkets have been in the headlines too. But there is come choice. If you want the cheapest with the least service go to Pak 'n Save. At the other send of the scale is New World.

Do I get value for money from my KiwiSaver provider?

I am not really sure, and you would think I'd know. I went and found my annual statement (that's about all I get) and looked at the fees and they weren't egregious.

Each of us have a different idea of what is value for money. How a scheme with hundreds of thousands of members can make this judgment call for each member is asking the impossible.

The FMA's next gripe was around fees charged for advice.

Here's what it said; "The investment manager must demonstrate the advice is received, not just ‘offered’; is ongoing, not just at onboarding; that the fee charged is reasonable; and that the fee, and to whom it is paid, is disclosed to members."

"Where fees are charged for services other than advice (for example, a robust investment process), the manager must demonstrate how the service adds value to the member’s account – by adding return, reducing risk, or ideally, both."

Sounds like we need a new compliance branch; The KiwiSaver Advice Police.

What the FMA says is all quite reasonable, but it is so woolly, and slightly heavy handed in its messaging that it becomes a little counterproductive.

If there is a problem then regulate it - that seems to be the way of the world at the moment.

Tags: ANZ FMA KiwiSaver Opinion The Wrap