KiwiSaver providers defend fees that gobble returns

New tracker shows some funds eating big share of investment pie

Anew tracking tool has revealed the fees of some KiwiSaver schemes are gobbling up returns, even eating up people's capital when providers don't make any money.

The Financial Markets Authority launched its KiwiSaver tracker tool on Tuesday allowing people to see the percentage of fees and returns for each KiwiSaver fund, and what percentage of the return was being taken in fees.

The tool covers more than 100 KiwiSaver funds and is based on quarterly fund data supplied by the KiwiSaver managers to the public and the regulator.

Comparing the funds showed that four funds gobbled up more than one dollar for every four they made for investors, and one fund ate into the capital of its investors because its fees came on top of negative returns.

SuperLife’s UK cash fund had an average annual return of -0.9 per cent after fees over the five years to September 30. With a fee of 0.6 per cent its fee was greater than its return.

SuperLife also had the fund with the biggest fee take as a percentage of returns. Its Gemino fund took more than 30 per cent of its return.

A spokeswoman for the NZX, which owns the SuperLife KiwiSaver business, said Gemino was closed to new members in March 2016 after it purchased the business as it was inconsistent with SuperLife’s passive approach.

“Due to t he concentrated investments, returns are historically more volatile so in years where returns are low, the fee represents a higher amount.”

The fund had 464 members with $3.67 million invested in it as of

September. The spokeswoman said the UK cash fund reflected the return on the UK cash deposit market, where the current Bank of England cash rate was 0.5 per cent, and was converted to New Zealand dollars.

“Returns are therefore affected by the depreciation of GBP [British pound] to NZD [New Zealand dollar], largely related to Brexit.”

The spokeswoman said in both cases the funds had relatively low fees but the take had been impacted by the returns.

Outside of the Gemino fund the Lifestages Capital Stable Portfolio had the second highest fee take as a percentage of its return at 26.4 per cent.

Lifestages KiwiSaver is run by FANZ, a division of SBS Bank.

Graham Duston, FANZ chief executive, said it had closed the Lifestages Capital Stable Portfolio fund and the Lifestages growth fund to new members a year ago and was in the process of migrating the members to new funds it had launched after better technology became avail- able.

The capital stable fund had 9545 members with $132m invested while the growth fund had 4060 members with $42m in it as of September.

He hoped to move the members across within the next year. The new funds have a much lower fee of 1.4 per cent compared to the closed growth fund which was 3 per cent over one year.

Duston said the FMA’s tracker tool would enable it to keep an eye on how it was tracking compared to others. “We always want to meet the market.”

Some fund providers said the fee take was only part of the picture.

Richard James, chief executive of NZ Funds, whose inflation strategy fund had a 25.9 per cent fee take, said it provided a premium service to its customers and that came at a cost.

“Our perspective is that we see someone who invests in KiwiSaver the same as any other investor. We believe they deserve the same service as any other portfolio investor.”

James said the reason people were in KiwiSaver was to create wealth and the top factors which affected that were when people started to save, their savings rate and how that grew over time, and the asset allocation and how that changed over time to meet a person’s changing life stages.

“Costs are an important factor but it is all subordinate to these three things.

“I think if there was a tool out there that measured wealth creation per investor it would show a different result to this bottom up tracker.”

James said t he company’s KiwiSaver members got access to its mywealth technology, into which it had poured a lot of resources.

“We are trying to provide a premium service to premium clients.”

James said both its inflation strategy fund and growth fund had been impacted by investing into a fund which had a very high return in 2013 but also took a high performance fee.

“I think a focus on cost is important but globally investment return and investor returns are very different.”

Blair Vernon, chief executive of AMP, whose cash fund also had one of the highest fee takes, said the cash funds stood out because cash returns were low.

Vernon said the fee take was only one dimension of looking at a fund.

He said AMP was a full-service adviser and its KiwiSaver members could access free advice. The company did not set out to have the lowest fee, because typically low fees equalled no advice.

When it came to KiwiSaver Vernon said the biggest challenges were getting people into the right fund and contributing regularly.

Overall about one million out of the total 2.7 million KiwiSaver members were classed as non-contributing by the FMA in the year to March 31, while more than 400,000 remain in a default fund which invests conservatively.

Vernon said those who were not contributing were a much bigger problem than those spending 2.3 per cent on fees because it would have a major impact on their retirement savings.

He said it was up to people to decide what fees were appropriate for the support and guidance they wanted.

“That is the trade-off people have to make.”

We are trying to provide a premium service to premium clients. Richard James, chief executive of NZ Funds