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Time for sinking cap on KiwiSaver fees: Glass

KiwiSaver providers should not be allowed to charge a fee of more than 100 basis points – and if they cannot run their funds on that, they should not be in business, says Paul Glass, executive chairman of Devon Funds Management.

Wednesday, May 24th 2017, 6:00AM 5 Comments

by Susan Edmunds

He said the retirement savings scheme needed to be made compulsory and the NZ Super Fund and ACC should be tasked with providing KiwiSaver funds at cost.

Glass said both organisations had excellent investment teams and were well resourced, with good long-term timeframes. “If anyone could provide low-cost KiwiSaver, it could be one of those guys.”

Glass said while banks, which have the bulk of the KiwiSaver market, were competitive, there were some schemes that were charging too much.

“If the regulator or government said if you’re going to provide a KiwiSaver scheme, you can’t charge more than 100bps all up, I can’t see any reason why they should be charging more than that but quite a few schemes are.”

He said the expensive schemes were often those sold aggressively to “less sophisticated” investors. While default schemes are obliged to ensure their fees are reasonable, there are no constraints on other providers.

“Rather than the hurdles you have to go through putting someone into a managed fund with $2000, if that regulatory firepower could be used ensuring everyone is getting a fair fee structure for KiwiSaver, that would be time well spent.”

Glass said a lot of the New Zealand population would not read disclosure documents or fee schedules, no matter how they were disclosed. “We need to protect those people from themselves and people who employ more aggressive sales practises.”

He said 100bps was fair. “If they can’t run on that, they shouldn’t be in business.”

KiwiSaver should be compulsory and the annual tax credit should be cut, he said. Over time it was likely that the pension would become means-tested, and without compulsion those who saved would have to chip in to cover those who had not.

Compulsion would change the conversation, he said. “There would be less stress about the retirement age and more emphasis on how much is saved.”

A spokesman for the FMA said it was focused on conduct, including fees.

"In our conduct guide we have been clear that all providers, including KiwiSaver providers, should be able to explain to their customers why their fees are reasonable for the services and products they are offering.  We made that clear in the Investor Entitlements we published earlier in the year," he said.

"We also supported MBIE in the work that contributed to the Government introducing the requirement for fees in dollars amounts to be included in KiwiSaver annual statements. We do this, because informed investors can take their own action. If an investor knows the fees they are paying and is comfortable testing their provider on whether those fees are reasonable, they can (and should) walk away if they don’t like what they hear. Our direct ability to influence providers is within the KiwiSaver Act, which states that fees must not be unreasonable. This applies when a new scheme enters the market, or a new fee is proposed. If someone feels that a fee is unreasonable then they can apply to the courts to determine a judgement."

Tags: KiwiSaver Paul Glass

« Kiwis leaving retirement planning too late$2m ANZ KiwiSaver processing error to be fixed »

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Comments from our readers

On 24 May 2017 at 9:47 am Brent Sheather said:
Good comments from Paul Glass but you know you’ve got a problem when the “regulated” call on the “regulators” to regulate then the regulators make bad excuses as to why they can’t properly protect retail investors. Sooner or later the public will get sick of the lack of action from our regulator. The sad fact is that whilst the bad guys have gone to jail the good guys actually inflict 99% of the damage on retail investors where damage is defined as bad advice and high fees that institutional investors like the Super Fund would not put up with.
On 24 May 2017 at 10:13 am John Berry said:
If we want to drive high fee KiwiSaver providers to charge lower fees I like Paul's simple suggestion of a 1% fee cap (...which should include performance fees...).

Not so sure about the practicality of the FMA's suggestion in the last para of the story - if a KiwiSaver investor doesn't like a fee charged they can take the provider to court... really?
On 24 May 2017 at 12:22 pm Graeme Tee said:
Good comments from Paul Glass; it’s about time someone else highlighted KiwiSaver fees other than the usual few. But what nonsense from the FMA “If someone feels a fee is unreasonable they can apply to the courts to determine a judgement”. Ridiculous comment from the regulator – isn’t their job to do this? And who is going to spend $000’s, time and effort to save a few dollars (properly disclosed no doubt by a rip-off fund manager) on a case that would probably fail. It would fail because who else but the regulator should determine what is reasonable?

To pass this function to a court is dereliction of duty by the FMA. Shows again, the regulatory capture that is happening every day in NZ. The banks have the biggest share of KiwiSaver, so best not upset them.
On 25 May 2017 at 10:23 am R1 said:
A couple of Guardian articles which highlight the issues with the 4 big banks in Aust. and surely translates directly into their results for investors, attitudes and tactics in NZ:

https://www.theguardian.com/australia-news/2017/mar/19/industry-superannuation-funds-go-on-attack-with-banks-arent-super-ad

https://www.theguardian.com/australia-news/2017/may/25/superannuation-funds-owned-by-big-banks-have-underperformed-report-says?utm_source=dlvr.it&utm_medium=twitter

On 25 May 2017 at 11:21 am Brent Sheather said:
Hi John and Graeme

Yes, agree what a ridiculous comment from the FMA….that mum and dad with $5,000 invested in a high cost fund with a performance fee can engage a QC for $400,000 and apply to the courts to get a determination as to whether the fee is fair. Contrast this pathetic level of non-action from our regulator with what the FCA in the UK is doing. The FCA is actually taking its responsibility to protect retail investors seriously. I have a feeling that the FMA’s comments in this article are going to be almost as damaging to its credibility as the infamous “polo shirt” debacle. I certainly have made a note of this latest faux pas. Very embarrassing, very sad.

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