Call for KiwiSaver providers to justify fees
Last year’s annual KiwiSaver report by the FMA found they paid $538.9 million in fees in the year to March 31, 2020, up 12.3% on the previous year. That was despite investment returns being down 122% over the year.
Although providers are managing more money, the FMA’s research has found they are not passing on the scale benefits to members, there is no systematic relationship between fees charged and returns and no systematic relationship between fees charged and the degree of active management a scheme has.
Active management is when a person makes decisions on where money is invested versus using a computer algorithm to track a market index, which is called passive investment.
Most KiwiSaver providers are active fund managers, although there are a growing number using passive management, which is a much cheaper way of managing money.
The FMA research also found active managers typically do not beat their benchmark index, after fees, over meaningful periods of time and passive managers typically do not closely replicate the performance of their market index after fees.
Paul Gregory, director of investment management at the
FMA, said while the guidance was focused on supervisors and fund managers, it should also provide members and investors with more information.
‘‘In terms of what should an investor see out of it is either one of two things — their provider is able to show some robust support for the fact the fees they are charging are not unreasonable and the value the member gets in return is at least adequate.’’
Alternatively, the review process could result in changes being made to the managed fund to add value to the member or reduce fees or both, Mr Gregory said.
The guidance did not create any new responsibility or requirements on fund managers or supervisors, he said.
‘‘What it does is designed to help managers and supervisors meet what is already there.’’
Although the FMA checks the fees upon the launch of a new KiwiSaver scheme, it is up to a scheme’s supervisor to check the manager is continuing to meet this. — The New Zealand Herald