Tool shows fees biting into fund returns
KiwiSaver growth fund investors lost between $4.60 and $14.70 of every $100 their investments earned in the past five years to fund manager fees, a new tool launched by the Financial Markets Authority (FMA) shows.
Investors in KiwiSaver balanced funds lost $5.20 to $25.90 of each $100 in before-tax returns.
The KiwiSaver fee tracker tool is the FMA’s attempt to get investors interested in how much their KiwiSaver managers are charging them.
But the regulator is keen not to be seen as advocating for the new breed of low-fee index-tracking funds, and says investors’ focus should be on both fees and returns.
The FMA’s Paul Gregory said the aim was to make the one- and five-year fee and return data available in an easy-to-use online tool to help KiwiSavers get their heads around fees and returns.
It was also to let people compare their funds with others that might charge less and return more.
‘‘That value consciousness and price consciousness is a quality that’s lacking across KiwiSavers generally,’’ Gregory said.
The FMA’s Liam Mason said: ‘‘If this excites people’s interest and gets them thinking about how expensive their fund is, then that’s great.’’
Figures from the tracker show what a large chunk of investment returns can be gobbled up by fees, an approach that Sam Stubbs from low-cost KiwiSaver provider Simplicity called ‘‘genius’’.
Investors in KiwiSaver balanced funds paid fees equal to between 4.6 per cent and 14.7 per cent of the returns investors got, but that does not mean investors in higher-fee funds all got worse value for money.
KiwiSavers in the SmartKiwi Balanced fund paid just $4.60 of every $100 of their returns in fees, leaving them with an after-fee but before tax per annum return of 9.5 per cent.
Investors in Milford’s balanced fund paid $10.10 of every $100 of their returns in fees, but got a far higher per annum return of 12.1 per cent over the same five-year period to the end of September.
Milford’s growth fund also charged a lot in fees, equating to 12.2 per cent of investment returns, but again it delivered a very high 14 per cent after-fees return.
Some investors choose to put their money with low-cost indextracker funds like Simplicity, believing that over the long haul active fund managers do not generally beat the market.
Others opt for high-fee active managers, hoping those managers will be able to use their intelligence to get better returns than the index trackers, even after fees.
The tool has been built using data from KiwiSaver providers’ quarterly fund updates, but it only lets people compare funds on oneand five-year periods.
KiwiSaver has just ticked passed its 10-year anniversary, and many KiwiSaver funds now have 10-year performance records.
The FMA expects to add 10-year comparisons, but has no timeframe for doing so.
Richard Klipin from the Financial Services Council called the tracker ‘‘a pretty tidy piece of engagement’’. ‘‘The value of this initiative is there’s a crying need to engage KiwiSavers with their KiwiSaver schemes.’’
This is the second taxpayerfunded KiwiSaver fees and returns tool. The other is on the Sorted.org.nz website run by the Commission for Financial Capability.