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Low-cost model better for advisers: Simplicity

Fund managers charging high fees for their products have kept a lid on what advisers can earn, Simplicity’s managing director said as the provider launched its first non-KiwiSaver funds.

Monday, March 6th 2017, 6:00AM 1 Comment

by Susan Edmunds

Simplicity has unveiled plans to branch out into the wider investment funds sector.

Its KiwiSaver scheme, launched last year, has $100 million under management.

The funds will operate on the same basis. Each fund will have 7000 investments in 23 countries and be fully hedged to the New Zealand dollar.

Overseas investments will be managed by Vanguard.  There will be conservative, balanced and growth options.

Fees are 0.31% plus $30 a year for each fund. Stubbs said that was between 50% and 75% cheaper than the average diversified investment fund in the market.

“A Kiwi with $50,000 invested in our growth fund over 10 years could be more than $10,000 better off than the average fund, all other things being equal,” he said.

“Fees for KiwiSaver funds are already way too high, and managed investment schemes are even worse. Some are just outrageous, reflecting old ways of managing money and sales tactics which belong in the last century,” he said.

“For too long fund managers have taken too much of a slice and advisers too little.”

He said advisers could hold Simplicity up as an example when talking to other managers.

“They could go to their existing suppliers and say 'what are you charging more than this for, this is what it can be provided for'. It will be a useful low benchmark and a useful product for clients.”

Simplicity will not take direct investments from non-individuals, so any trusts or companies that want to invest will need to do so through an adviser via a wrap platform.

He said there could be interest from the small institutional market. “It’s very adviser-friendly. Advisers who want to get a really low-cost manager and add their advice on top - because that’s what they are experts at - will find it easier. And the number is less eye-watering for the client.

“The problem advisers have had is that managers have been taking too much of the fee but this is starting to change that.”

Stubbs said it was possible to offer low fees because Simplicity did not pay trail commissions or run an expensive head office.  He said the breakeven for Simplicity’s KiwiSaver was between $300m and $500m FUM.

Stubbs said one in five of Simplicity's KiwiSaver members had asked for an option that allowed them to withdraw money at any time.

The minimum investment will be $10,000 and the funds open for deposits on April 3.

Tags: KiwiSaver Simplicity

« KiwiSaver popularity brings attention to 'second-order' problemsKiwiSaver feels hit of rising interest rates »

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Comments from our readers

On 6 March 2017 at 9:21 am NormanStacey said:
Sam may have some point to the extent to the point he recommends asking, 'what are you charging more than this for'.
The NZ Superannuation Fund earned deserved bonuses for returning 13% in calendar 2016. The average return for Balanced KiwiSaver Funds over the same period was 6.6% (less in Takapuna). The 6.4% difference is far greater than the fee differential
.
The choice and investment acumen among KiwiSaver providers is very poor. Sam is correct that most are charging far too much for mediocrity, or worse. It would be nice to see an active, talented manager - and investors would be happy to pay for it.

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