NZ fund managers reap $125.8m in KiwiSaver fees

BUSINESSDESK: New Zealand fund managers pulled $125.8 million in administration and investment management fees from the country's KiwiSaver schemes, which continued to expand in the 2011 financial year.

Fees were the biggest cost on funds, accounting for about 1% of the $12.74 billion under management as at June 30, the Financial Markets Authority's annual review shows. That is the same ratio as a year earlier, when $92.8 million was paid.

Fees for fund managers such as Milford Asset Management and Fisher Funds are required to be "not unreasonable", a measure that was met by all providers.

There were 1.91 million KiwiSaver members as at June 30, up from 1.75 million a year earlier. Of that, about 23.4% are in default schemes, down from 24.5% a year earlier.

"Our desire is for members to make decisions based on their life stage, age and personal circumstances which will leave them in the best financial position when they reach NZ Super age," chief executive Sean Hughes says.

"KiwiSaver is a key focus for FMA, which has already published guidance on sales and distribution and performance fees."

The Ministry of Business, Innovation and Employment is seeking public submissions on draft regulations to make it easier to compare KiwiSaver performance, which are set to come into effect next year.

Under the regulations, KiwiSaver providers would have to publish one comprehensive disclosure statement every year, and four smaller, quarterly reports.

The government put off a planned automatic enrolment of all workers into KiwiSaver this year, saying that would put the 2015 operating surplus at risk.

KiwiSaver has undergone a raft of changes under the National-led administration was elected in 2008, with the government last year halving its contribution to accounts and increasing the minimum employee and employer contribution to 3% from April next year to help shift the savings burden from the government and onto private sector.

It had previously cut the minimum employee contribution to 2% from 4%.

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19 Comments & Questions

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This exactly why KiwiSaver should never, ever be compulsory.

Being compelled by your government to hand over your money in fees to some guy in a suit just sucks ... and is morally repugnant.

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Settle down, it's $66 per account per annum. They're big headline numbers but scratch a little deeper.......how much were those dividends that go back across the ditch each year to the Aussie banks??

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Most New Zealanders should not be invested in Kiwisaver funds but in no load index funds. (Google John Bogle and read his arguments for no load index funds): They have no or minimal fees and are indexed to the market and over time produce higher returns than managed funds with much less risk. Since January 2012 the NZX50 has risen from 3350 to 4233: up 26%, which is far better than most professional fund managers ever achieve in any given year. The only real beneficiaries of Kiwisaver are the fund managers who get rich from fees rather than clever stock picking and listed company insiders who are able to cash in stock options thanks to fund manager buyers. Kiwisaver and the general funds management industry help prop up an over priced NZ stock market, which should be selling at a discount to net asset value because it is such a high risk place to put money. The NZ stock market has proved to be a massive destroyer of wealth over the past 30 years. It might have been a builder of wealth if fund managers did their jobs properly by agitating for good management practices and higher productivity instead of just short term renting shares. A good recent example of wealth destruction is G Morgan Kiwisaver. Despite having no investment expertise or experience he used his high profile to draw in hundreds of trusting NZ investors. Result: After several years of poor returns he throws in the towel "because it's too much hassle" and he wants to go travelling and sells his fund for $50m. GM: $50m His investors: - 10%

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There are no-load NZX Index funds, but they are quite expensive, 0.80-1%.

And rightly so, no fund manager in NZ would have achieved a 26% y.o.y return because none of them be crazy enough to have 100% exposure to NZ equities. The typical KS fund is 9-10% NZ Equities, and up to 60% fixed income.

A much more boring returns profile, but also less risk. Access to capital markets and maintaining a retail fund is not free...

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Perhaps they don't have 100% in NZ equities because they don't have confidence in the managements of NZX listed companies. If that's the case why should anyone have any confidence in Kiwisaver? When fund managers start acting like long term shareholder owners instead of hit and run short term speculators we might see them taking a bit more interest in the welfare of the companies they invest their customers' retirement savings in. They've stood by passively and have done nothing to halt the obscene escalation in management pay, nor have they intervened in decisions that have proved disastrous to both the companies themselves, their workers and their shareholders. Consider the woeful performance of Feltex, F&P, Telecom, PGG Wrightson etc. If the various fund mangers in these companies had done their fiduciary duty and questioned some of the decisions made and called for a cleanout at board and management level things might be very different. Kiwisaver will ultimately prove to be another hard learning experience for the long suffering NZ saver.

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Makes you wonder why KiwiSaver which for most investors should be focused on growing capital has 60% in fixed income...maybe fund managers should learn about growth vs. the historical NZ tendency towards yield. Coupons will not do KiwiSavers any good come retirement.

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So you expect that investment professionals, fund administators, lawyers, accoutnants everybody else needed to run a pension fund just do it for free, huh? Or access to capital markets has no fees or any costs to recover? ... What a joke.

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So you would have no objection to banks becoming approved Kiwisaver providers, for those who want an account in their own name earning interest, and charging very little in the way of fees. Some of us are relatively risk averse and would be quite happy with modest returns.

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Sorry? Nearly all our banks are KS providers, and bank and non-bank scheme providers have cash-only products that earn money market returns with virtually zero risk.

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In that regard, it might be more interesting to see gross and net profit figures, and average remuneration levels across the roles within the industry, rather than simply the gross amount of management fees taken.

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1% sounds like a lot, but it must be remembered that there is a high fixed cost to administration -- the costs of administering $10 or $10,000 are about the same. Investment management is also typically charged as a % of funds under management. However, an overall cost of 1% is high, given that most KS funds are invested very conservatively.

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there you go #2 - #1 is an example of the lack of financial literacy that is such a concern in this country.

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A bank's KS fund will about 50 at head office, including telephone operators, mail processing clerks, product administrators, accountants, fund administrators, in-house council, investment professionals (analysts and portfolio managers) an HR person, some middle and senior managment... Plus all the overheads. And not including brokerage costs and investment fees incurred either. All for what, 6-10% of that $126m wallet... ~1% of AUM is very reasonable. Cash products are lower, and high risk products are higher.

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Can it be long before Gattung and Reynolds get into being a Kiwisaver 'fund manager'? The next easiest deep trough since Telecom....with about as much oversight too, by the sound of it.
A max of .02% for admin and a share in profits only up to .12% should be the criteria. Performance brings reward...not just being there with hands out.

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If there was an option to have the interest based on 90day bill rate, then all would be needed is some pretty simple computer administration. the return will likely beat all the parasites efforts too.

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Yeah, cash-only funds. The management of the fund is usually done completely by 1 person. But you can't get rid of the hoards of fund admin staff needed to run a retail scheme - dozens of phone operators, lawyers and accountants, people to write the glossy brochures, keep the regulators happy, etc.

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Unfortunately you forget about the costs of procuring a prospectus, the costs of paying a trustee, etc. etc.
OR are you happy that I M Greedy runs his own Kiwisaver scheme and handles all the money with no oversight.
Get real people - all services have a cost and the more regulation - the more the cost.
Protection comes at a price - be it from organised crime or the law makers who try to counter such organised crime.

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The 1% fee is reasonable so early on. Initial setup costs were large as are basic/in-elastic costs fixed costs. Economies of scale is the key. At the current time it's not there.
Overtime we'll see the fees drop given the base fixed costs.
There is no easy fix as suggested above, this is naive talk.
The trustee and asset pricing fees are bigger than the fees suggested.

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oner percent is very resnoble , but should only be paid on results not like the telecome ceo that gets massive hand outs even when the shsre price is only twenty five percent of the original price . pray him and his elk dont get there hands on the funds .

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