Lack of action on KiwiSaver fees prompts call for cap

KiwiSaver fees charged by some providers have been described as ‘‘excessive’’ by one commentator, who wants to see the Government impose a cap.

Sorted has launched a new Smart Investor tool, which allows people to compare investment products, including KiwiSaver funds, managed funds, bonds and shares.

A comparison of KiwiSaver funds shows the most expensive is the Booster Geared Growth Fund, which has fees of 3.45 per cent.

David Beattie, a principal at Booster, said that was affected by the structure of the fund. It borrows to buy shares, and those borrowing costs are currently included in the fee total.

‘‘However, we have now received confirmation from the Financial Markets Authority that the borrowing costs do not now need to be included in the total annual fund charges.’’

That would reduce the fee to about 2 per cent.

NZ Funds’ Growth Strategy Fund was in second place with fees of 2.76 per cent.

NZ Funds’ head of service development Geoff Motion said that fee was taken from the period to March 31, 2018.

‘‘Since then, NZ Funds has made a number of changes, which have resulted in an estimated fee drop of 0.87 per cent, taking our projected total fund charges for the NZ Funds Growth Strategy to 1.53 per cent.’’

He said NZ Funds’ KiwiSaver scheme had an average KiwiSaver balance of around $28,000 which was almost three times the $10,000 balance the website assumed, and made the fee quoted by the tool higher as a result.

QuayStreet’s Altum Fund was in third place, charging 2.6 per cent, and Aon’s Milford Active Growth Wholesale Fund in fourth place with 2.27 per cent.

Generate’s Focused Growth Fund charges 2.23 per cent.

‘‘Generate’s management fee is 1 per cent per annum and we invest into – what we believe to be – worldclass underlying funds some of whom charge performance fees.

‘‘In the year to March 31, those underlying funds, as a whole, performed very well and therefore our ‘other fees’ were higher,’’ Generate chief executive Henry Tongue said.

He said it had been the bestperforming aggressive KiwiSaver fund after fees, according to Morningstar, with an average return of 9.3 per cent a year over the past five years. Fees would come down as the funds grew.

But Chris Douglas, of investment support firm My Fiduciary, said the fees were excessive.

‘‘This is a government and employer-sponsored scheme and fund managers need to take this into account when they are setting fees,’’ he said.

‘‘It is the one constant that a fund manager can control and fees can take a significant chunk out of a Kiwi investor’s future savings.

‘‘Much has been said and written about fees, but there has been very little change here over the years. I am definitely one of those in favour of a fee cap on KiwiSaver schemes, to ensure that investors don’t end up paying too much.’’

Ayesha Scott, a finance expert at AUT, said the fees were higher than on comparable products overseas.

‘‘Without knowing how much these funds cost to run, commenting on whether fees are too high is opinion-based. In my opinion, they are high.

‘‘In saying that, KiwiSaver providers are in general private fund managers and therefore entitled to make a profit.

‘‘The best thing we as investors can do is make sure we compare based on fees and create competition to push fees down across the whole industry.’’

‘‘Fees can take a significant chunk out of a Kiwi investor’s future savings.’’

Chris Douglas of My Fiduciary