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First zero fee KiwiSaver fund arrives

[UPDATED] NZ Funds, often considered one of the more expensive managers in the New Zealand market has launched a zero fee KiwiSaver fund which will be solely distributed through financial advisers.

Wednesday, September 1st 2021, 7:26AM 7 Comments

The Auckland-based manager has launched a no-cost balanced fund in its KiwiSaver scheme to compliment its range of active funds.

Earlier this year when new KiwiSaver default funds were launched the market was surprised by the NZX-owned SuperLife pricing its balanced fund at 20 basis points.

NZ Funds product disclosure statement says the fund provides "an entry level option, which uses a passive investment approach to gain exposure to a balanced mix of income and growth assets."

It will have a 50:50 split between shares and bonds and will invest in index fund.

Interestingly, unlike most of the other major passive fund providers in the KiwiSaver market, it will be managed by a New Zealand-based investment team at NZ Funds.

"We may allocate clients' funds in line with our chosen indices by investing directly, via a wholesale trust, via an index tracking futures contract, or via an index tracking fund," the PPS says.

"The performance of the Balanced Fund may not replicate the chosen indices due to the practicalities of investment management, including the timing of purchases and sales, funds flows, liquidity and/or in order to meet NZ Funds’ responsible investment policy."

The move comes after NZ Funds coped some flak for investing in cryptocurrencies which pushed its KiwiSaver returns up over 100% in a year, consequently the manager reaped big fees.

The Balanced Fund will initially only be available through NZ Funds’ national network of more than 600 financial advisers. NZ Funds chief executive, Michael Lang says the firms has a longstanding belief in the value of financial advice.

“We want to encourage New Zealanders to talk to a financial adviser,” he says. “Numerous studies show that investors who have access to financial advice end up materially better off than those who don’t.”

“To get New Zealanders to talk to advisers,” Lang says, “we need to overcome two misconceptions about financial advice: that it’s expensive and that it’s intrusive.

Advisers will not charge clients any fees to access this service and by giving general tips and not asking intrusive questions, it will help build public trust and confidence in financial advisers.”

"A conversation with an adviser also means clients are more likely to end up in the best KiwiSaver fund for their age and life stage."

Lang says this is  an opportunity to educate and support Kiwis on the options available to them, so they get the best possible long-term financial outcomes."

Lang says the balanced fund is not a loss leader as it is part of its group of KiwiSaver funds. He says the company not charged fees on its actively-managed KiwiSaver accounts held by under-18s, to encourage New Zealanders to start saving for their retirement as early as possible. Under-18s now make up 7% of its KiwiSaver Scheme.

NZ Funds provides a free UK and Australian pension transfer service so that Kiwis returning home or people migrating here can bring the retirement savings they’ve already built up with them. "So far, around $100 million has been transferred through the service, saving Kiwis around $5 million to $10 million in fees."

NZ Funds provides a free work-based financial literacy programme which teaches Kiwis how to optimise their retirement savings. So far, over 200 New Zealand companies and Government organisations have used the service.

During the start of the COVID-19 crisis in March 2020, when markets fell significantly, NZ Funds and its nationwide network of independent financial advisers ran a free helpline for Kiwis concerned about their KiwiSaver balances. The goal of the helpline was to alleviate panic and reduce the chance that Kiwis would react to short-term falls by moving into more conservative funds.

NZ Funds has also launched Wealth Builder – a companion product that works like KiwiSaver, but without the lock-in. The aim of Wealth Builder is to give Kiwis a way to increase their retirement savings rate, while having the money available to them whenever they need it.

For NZ Funds the goal of these initiatives is to help as many Kiwis as possible achieve a comfortable retirement, he says.

Lang says development of the fund is also about building up New Zealand's financial services industry.

"Several of the largest KiwiSaver providers have outsourced their investment management to giant American money managers, often for the sake of a fraction of a percent in fees."

“We want to reverse the flow of money to offshore managers like BlackRock and Vanguard, because it does nothing to help New Zealand or the growth of our investment industry,” Lang says.

“Many Kiwis don’t know that when they invest with some KiwiSaver providers, most of their money is being managed from America. There’s a big difference between having your money locally managed but internationally invested and having substantially all your money managed by a US manager so they can profit from managing it.”

Lang believes that in a generation’s time this practice could cost the New Zealand economy billions in tax and GDP. “We are at risk of losing New Zealand-based investment management expertise.”

NZ Funds, he says, wants to do everything it can to help New Zealand become an investment hub in the Asia-Pacific region, where much of the world’s wealth will be created in the coming decades.

"An important step in this mission is giving Kiwis the tools and solutions they need to grow their long-term savings, while supporting the local economy. “We want to encourage New Zealanders to invest in their future and do so in a way that turns New Zealand into a world-leading investment hub.”

Tags: fees KiwiSaver NZ Funds

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Comments from our readers

On 1 September 2021 at 10:18 am Another AFA said:
Bold move from NZ Funds! Congratulations on leading the market with this initiative, I assume it will be a 'lost leader' for the Manager. Will be interesting to see how other low cost funds react (Any comment from Mr Stubbs?). Just goes to show that competing on fees is a poor business strategy with very few winners in the long run.
On 1 September 2021 at 11:29 am Graeme33 said:
I guess Innovation should be applauded.Not sure latest thinking .I guess putting a young person into a Balanced Fund V High Growth Fund,Question for me how much they Have LOST...when they retire all that time later .Graeme Adams
On 1 September 2021 at 11:29 am John Milner said:
I've thought long and hard about how to respond to this article and NZ Funds with a comprehensive, fair and balance view and finally come up with - no.
On 1 September 2021 at 12:38 pm Graeme33 said:
....Lets see a growth Fund at 20 Basis pts...That might put the cat amoungst the pigeons ..Graeme
On 2 September 2021 at 8:46 am Pragmatic said:
I really like this NZ Funds initiative - which clearly demonstrates that those who compete of price will also be outdone.

My only concern is with investors being made aware of any counter-party risks that are associated with stock lending to pay the Manager. Whilst these are marginal they exist - and as they say - there’s no such thing as a free lunch.
On 7 September 2021 at 7:29 pm rupertcarlyon said:
If this is only available through advisers, will advisers be provided the same incentives to sign a client up to this fund as to the other more expensive NZ Funds products.
On 9 September 2021 at 12:30 pm Dosser said:
"NZ Funds has also launched Wealth Builder – a companion product that works like KiwiSaver, but without the lock-in"
So NZ Funds will be contributing 3% of salary?

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