There has been quite a lot of press recently on KiwiSaver fees. This is a natural development as fees are a crucial component of the long-term returns for any KiwiSaver investor with the other key components being investment performance and any tax on the return generated.
Of these factors investment performance is the most important but if performance is poor then fees can become relatively more significant.
Given this it has been disappointing to see that making fee comparisons between KiwiSaver Providers is so difficult with a lack of transparency in some cases. Moreover there are different fee calculation methodologies sometimes occurring making a true “apples with apples” comparison almost impossible for KiwiSaver investors.
Yesterday Morningstar produced released some work on their website (http://www.morningstar.co.nz/kiwisaver/article/fee-analysis-how-we-compare-to-australia/4318) looking to make comparable fee comparisons across some KiwiSaver providers and their conclusions were interesting.
Using a global standard Morningstar found that in general KiwiSaver fees were closer to Australian wholesale (large investors) fees than to the fees Australian retail investors pay. This is pleasing as this was a key aim of Michael Cullen and Peter Harris in putting together KiwiSaver 5-6 years ago. Their hope was that competition would ensure relatively low fees but they (with help from legislation and the Government Actuary) also prodded KiwiSaver Providers in this direction.
This is a key positive for KiwiSaver investors who can feel confident Kiwisaver fee levels are, in general, reasonable compared to their Australian counterparts.
This is not to say that fees on KiwiSaver products were low in all cases – far from it. Morningstar did find a wide range of fees across Providers. This is not a bad thing as allowing investors choice between Kiwisaver Providers is a key way of ensuring accountability and healthy competition is maintained. However, for this to work it is crucial that investors and advisers are quite clear on what fees are from each provider to better ensure that if you pay higher fees you are getting better returns.
Most investors have no problem with higher fees if they are getting above average returns. Unfortunately this is not always the case with some investors being in funds which have a high fee / poor performance combination – the worst of all worlds.
Studies like Morningstar’s and future government regulation in this area should help ensure that investors can clearly compare different net performance after fees across all KiwiSaver providers so that they can make a better informed investment choice.