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KiwiSaver fees - Sam says the big players are ripping you off

Sam Stubbs says the biggest KiwiSaver managers are ripping Kiwis off after the FMA revealed just how much was made in fees by KiwiSaver scheme providers over the past year.

Friday, October 1st 2021, 6:00AM 8 Comments

by Matthew Martin

Earlier this week, the Financial Markets Authority (FMA) released its KiwiSaver Annual Report for the year ended March 2021, which shows total funds under management reached $81.6 billion, or double the $40.8 billion held in 2017.

However, in a LinkedIn post, the outspoken managing director of Simplicity Sam Stubbs says the combined fees revenue made by KiwiSaver providers of $650.3 million (up 20.7% from the same time last year) was "pure cream".

"The FMA uses more polite language, but I won’t.

"The largest KiwiSaver managers are just greedy and still not passing on their enormous benefits of scale," says Stubbs.

"The irony is many were gifted their scale by being appointed default providers. So how do they reward their customers? By ripping them off.

"Fees in New Zealand are very high by global standards, and managers no longer have the excuse of small scale.

"And to dissuade any bleating about their need for shareholder returns, the capital required to be a KiwiSaver manager is effectively zero. Their fees and profits are pure cream."

Stubbs has some support from the FMA's director of investment management Paul Gregory, but Mint Asset Management's David Boyle says fees are only part of what KiwiSaver is about and would come down as funds grew over time.

Just yesterday, ANZ announced it will scrap its $18 annual membership fee from the ANZ KiwiSaver Scheme, ANZ Default KiwiSaver Scheme and the OneAnswer KiwiSaver Scheme.

"We’ve also reduced the management fees of the Conservative Funds (excluding the Default Fund) and Conservative Balanced Funds by 0.22% and 0.15% respectively," says ANZ's acting managing director of funds management Stewart Taylor.

“We regularly review fees as we achieve greater economies of scale - this latest change particularly benefits members with lower balances or those just starting out," Taylor says.

Gregory says one of the FMA's major focuses this year was on value for money and that the rate of growth in total fee revenue was a function of the percentage-based investment management fees that providers take as a cut of their members’ balances, not a sign that fees charged were increasing.

But he says, as a whole, "...the KiwiSaver providers are not passing on the value for money they are receiving through fees".

"Those active funds still need a nudge," he says.

"Default provider status is a privilege and remains a privilege...and there will be a lot of scale heading to those new default providers, but not straight away.

"We expect these sorts of moves to show up in the next annual KiwiSaver report and flatten when you get to scale in the industry, we trust our value for money guidance will make them look at what they are charging and what value they are providing for it and the precedent being set by other providers in the market."

Gregory says that trend was already evident with fixed fees, or administration fees, which decreased by 4.8% to almost $80.8 million, as several KiwiSaver schemes reduced them or changed their structure.

“This is appropriate, as these fees were only intended to help providers cover costs in KiwiSaver’s early stages,” Gregory says.

Boyle says fees revenue was up simply due to a buoyant stock market and that fees charged by providers were not over the top.

"As the fund size grows, costs go up as well and you need to find a happy medium.

"As an industry, we have to be pretty transparent and the customer can see clearly what their fees are in real terms."

Tags: David Boyle fees FMA KiwiSaver Paul Gregory Sam Stubbs

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Comments from our readers

On 1 October 2021 at 10:57 am Dirty Harry said:
What is "value"?
I have flown with both Jet Star and Air NZ.
The last time I flew I paid a bit more and went Air NZ.
My flight wasn't cancelled, my bags did arrive. The aircraft was newish, the staff pleasant and helpful. The food and coffee was acceptable (all compared to the competitor).
In fact I paid extra when booking to have the option of changing my flight on the day, which I ended up doing.
All of this would have made my costs very poor "value" when compared to the cheapest option - if the definition of "value" was all about the price.
On 1 October 2021 at 1:31 pm Pragmatic said:
If the consumer wants a no-frills KiwiSaver option that is based on price then there are a variety of low cost options available - Simplicity being one of them. The main yardstick must be price though, with a steady race to the bottom amongst providers.

If the consumer is looking for a more actively managed or bespoke approach, then this comes at a cost... although I'm the first to acknowledge that some providers are delivering a 'vanilla' solution at a premium price (think AMP).

The challenge is to replace the emotive price advertorials with accurate measures of 'value'... something that I suspect will become more interesting when richly priced securities markets eventually normalise.
On 1 October 2021 at 1:59 pm p simone said:
Indeed someone with an agenda pushing an angle that suits their business. Value is about much more than price.

But as amused alludes to this - a few outliers giving Sam ammunition.

The example given by amused is a case in point with a vanilla tracker fund yet according to the sorted fee site very high fees from AMP.

Maybe if Sam's media stunts lead the regulator to address these high fees it will be good for confidence in the whole sector.
On 1 October 2021 at 3:26 pm Adviser1 said:
gee he's a broken record on this...
On 1 October 2021 at 3:40 pm John Milner said:
I think the subject and comments are rather amusing. Discussing frills or no frills funds, when the majority fail to achieve their own benchmarks, let alone beat them, on a long-term consistent basis. All rather hit and miss.
The FMA has documented its expectation of value. Both active and passive. I don't see a lot of pass marks sadly. For average Joe-Public to even find this information on many Big End Of Town websites is almost impossible. I just wonder why...
On 2 October 2021 at 3:35 pm Investinghope said:
'Pure Cream' should be the banks nick name. Even in the current climate of low interest rates the banks are still creaming it.
On 2 October 2021 at 3:39 pm Investinghope said:
Do people really think banks are offering an excellent tool in 'Kiwisaver'. Yes Kiwisavers good for us but at the end of the day it's a business model which banks will take the 'Cream' off the top. We all now know that the 'Cream' is a large slice.
On 4 October 2021 at 9:17 am dcwhyte said:
Price is only an issue in the absence of value.....

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