Compare performance, risk profile and fee breakdown for each KiwiSaver fund
KiwiSaver is an increasingly big business with total annual fees soaring 16 per cent to $357 million, but there is a wide variation in the rates providers are charging savers, a Herald investigation reveals.
The analysis of more than 500 individual KiwiSaver funds came from information provided in filings to the Financial Markets Authority covering the 12 months to March 31, 2016.
While fees vary depending on the type of fund — growth-focussed active management typically costs more than passive conservative management — the project also allows the ranking of providers by average fees charged.
NZ Funds were found to be the most expensive provider charging average fees of 2.11 per cent, while ASB Bank was the cheapest charging an average of only 0.49 per cent.
These fee percentages exclude membership fees, which averaged around $27 per year per account.
The fees amount to hundreds of dollars a year for individual investors, with the prospect of tens of thousands of dollars in total over an investment’s lifetime before funds are eventually cashed out on retirement.
Michael Lang, the chief investment officer for NZ Funds, said he was not surprised the results showed his organisation was found to be the country’s most expensive KiwiSaver manger.
“We didn’t set out with the objective to design the lowest-cost provider. Our objective was to set up the best service possible,” Lang said.
Lang pointed to the operation of a 24-hour call centre, what he described as “world class” international asset managers who ensured global diversification of investments, and detailed monthly reports as part of NZ Funds’ service.
At the other end of the cost spectrum, a spokesperson for ASB said keeping fees low, and running “cost-effective KiwiSaver solutions” were a key focus of their business.
“The cost of managing money is an important component of investment returns,” the spokesperson said, drawing attention to the provider’s consistent rating from CanStar of delivering “outstanding value”.
Overall fees averaged 1.1 per cent of the $32.5 billion under management, with the sector dominated by banks with a range of boutique providers snapping at their heels. With ongoing contributions and compounding interest the levels of fees charged and assets under management will continue to grow until equilibrium is reached in the coming decades.
A Treasury report from last year found the overall levels of fees were similar to that charged in Australian super schemes, but a range of industry figures and experts said investors should shop around and ensure they were paying what they felt was a fair price.
Minister of Commerce Paul Goldsmith welcomed more information about the sector — including the investigation by the Herald into responsible investing practices — as it all helped to inform people’s decisions.
“Anything that encourages New Zealanders to think about their KiwiSaver provider and what they’re investing in and what fees they’re getting charged is a good thing,” Goldsmith said. “Wearing my competition hat, I’m always keen for there to be a competitive environment.”
Matt Whineray, the chief investment officer of the $30b New Zealand Superannuation Fund, said fee levels should be a core concern for investors.
“Totally, it is a key driver of what ends up in people’s pockets. People end up through disinterest or neglect sitting in [funds] they don’t fully understand,” Whineray said.
The most recent NZSF annual report said their fund expenses for the 2015 year amounted to only 0.365 per cent.
Whineray said part of this low rate was due to scale, but it also came down to properly valuing passive investments, which comprised 70 per cent of the fund’s holdings, that didn’t attract a premium fees.
“We do benefit a bit from scale, but I don’t know at what point that scale happens. The costs of passive replication are not great, particularly with changes in technology over the past four or five years,” Whineray said.
Sam Stubbs, who launched the KiwiSaver provider Simplicity earlier this month explicitly aiming to set the floor for fees by offering no-frills index investments, is understandably bearish on the subject.
“Everyone says they charge 1.3 per cent, and while that doesn’t sound like much — it could well be 25 per cent of everything you make. And if people told you they were taking a quarter of everything you make, you’d want to be sure you were getting value for money,” he said.
Stubbs was unwilling to set a precise number on where he hoped Simplicity’s fees would eventually settle, but given his fund was operating on a non-profit basis it would be unlikely be much more than what he paid the underlying fund managers.
“You can generally get international fund management at 20 basis points [0.2 per cent]: That’s one-sixth of what KiwiSaver providers are charging. Where’s the rest going?”
The analysis also showed the average KiwiSaver account size has grown from $9741 to $10,617, but with considerable variance between those providers who seem to have been chasing new sign-ups with relatively smaller contribution levels and balances, such as BNZ ($6,926), and runaway account-size leader Milford ($34,243).