KiwiSaver

Fisher Funds has announced it will remove performance fees across all its KiwiSaver and managed funds’ multi asset portfolios on July 1.

Fisher clients were told performance fees will go in their monthly performance update. CEO Bruce McLachlan says Fisher wants to leverage the scale it has achieved through its acquisition of Kiwi Wealth last year.

The $310 million buyout maneuvered Fisher into the number three spot of the country’s largest KiwiSaver fund providers behind ANZ and ASB. Fisher gained Kiwi Wealth’s 270,000 members, and says client numbers now stand at more than half a million and funds under management are at $22 billion.

Currently Fisher’s KiwiSaver Growth Fund has a performance-based fee based on a hurdle rate of return of OCR+5% per annum. The hurdle rate is the minimum return the fund must achieve before the client is charged a performance fee. This means clients might pay a performance fee even when the fund’s performance is below the market index.

Dropping fees is good news for clients who last month faced the unsettling news that Fisher Funds KiwiSaver was among the many local schemes which lost millions of dollars through Signature Bank Investments. This was confirmed by Fisher to be around $50 million from its select international portfolio and NZX-listed investment company Marlin Global. A Fisher Fund spokesperson said at the time that this would equate to a loss of $320 on a $50,000 balance in the KiwiSaver Growth fund.

KiwiSaver returns for the last three months are 3.1% for conservative, 5.7% for growth, and 4.7% for the balanced strategy.

KiwiSaver providers should tell clients about exposures to Silicon Valley Bank and Signature Bank and put them in context to restore confidence.

Investment advisor Chris Douglas of My Fiduciary says KiwiSaver fund managers have an obligation to provide full and frank disclosure to investors and even prospective investors.

His comments come in the wake of multiple KiwiSaver schemes losing money through investment in the failed US mid-tier banks Silicon Valley Bank and Signature Bank.

“Too often people feel that funds are opaque. That’s changed a lot over the last few years with greater transparency from regulation and quarterly reporting, but with KiwiSaver in particular, there are incentives to join; it’s government sponsored, there’s the tax credit, and so there’s a higher level of obligation from fund managers to really make sure they engage with the public and with the media, on what they're doing and why.”

Last week Newsroom reported that the Fisher Funds KiwiSaver scheme had lost $80 million through Signature Bank investments. Signature Bank was in its select international portfolio and its NZX-listed investment company Marlin Global had advised a 3.3 per cent weighting to market. Fisher said across the portfolios with exposure to Signature Bank, holdings ranged from 0.2 to 0.6 per cent. In its blog Fisher advised clients it had written the value of its Signature Bank holdings down to zero.

This week the NZ Herald revealed that ANZ saw a loss in value of $31m from exposure to SVB across KiwiSaver and non-KiwiSaver with total funds under management of $30.5 billion. ASB Bank had exposure to both US banks as of February; SVB was worth less than $2 million and Signature Bank was less than $1m across total funds under management of more than $20b. The impact on client funds was estimated at less than 0.01 per cent. Westpac’s KiwiSaver manager BTNZ had small exposure to SVB with around $100,000 in shares and $2 million in bonds. It sold the bonds for around half their original value and estimated the impact at around 0.004 per cent for growth and 0.015 per cent for conservative funds. Milford said it had a small exposure which had minimal impact on funds, and would advise clients through the usual updates. It wouldn’t put a dollar value on its investments.

Although there is no legal obligation of KiwiSaver providers to tell members if they lost money on a single investment unless it was material in the context of the investment portfolio, Douglas says right now is the time to give investors confidence that they are in a well diversified portfolio, that the US regional banks are a very small part of the wider economy, and that the regulator has stepped in to give a tremendous amount of confidence to deposit holders in all banks.

“I understand why they don't necessarily need to always be putting out notes to investors. They have to balance between scaring people and worrying about what's going on within the markets and assuring them they should be focused on the long term.

How they think about engaging with clients is really important because the reality  is they have to strike a balance. With KiwiSaver people can easily switch out and move to another KiwiSaver provider.”

In 2007, Milford Asset Management entered its retail phase, originally built on a network of direct clients.

It has steadily established a following among third-party advice businesses and recently have switched to multi-channel distribution.

Despite having a multi-channel distribution strategy prior to joining, Milford head of intermediary distribution Michael Robson says his role four years ago was focused on the intermediary channel- business direct to financial advisers, but switching to a multi-channel model has seen a significantly positive effect on Milford’s third-party distribution market – specifically Kiwisaver.

He says dealing directly with independent financial advisers had contributed to Milford’s then $200 million Kiwisaver scheme but opening the multi-channel distribution saw the scheme grow to $1.73 million which he attributes to continued engagement with advisers, resolving transparent advice fee and client rebate issues a few years earlier, and technology.

Robson says having the option of digital platforms has been beneficial and embraced by clients and advisers.“ It fits in with our multi-channel distribution that clients may want to access Milford through a range of different ways. We’re supportive of clients being able to access us in the way that suits them.”

Robsons says while Milford are not relying directly on the use of technological advice alone, they do have a direct offering but if clients have relationships with advisers who feel they need that ongoing advice, they can support that.

“Now that we’ve set up that distribution channel, they also have access to Milford funds, they can also choose to have an adviser support them on their investments, like their Kiwisaver journey.”

Simplicity cuts KiwiSaver fees and complains other managers are charging too much.

KiwiSaver manager Simplicity has made a 3.3% total fee cut across its conservative, balanced and growth KiwiSaver funds and diversified investment funds. The new total fund charge will be 0.30%, effective April 1. The fee cut is the fifth in five years.

Simplicity removed annual member fees for investors under the age of 18 in 2018, and the following year moved to a single member fee regardless of the number of funds held by an investor. In 2020 the membership fee was reduced by $10, and this fee was eliminated for all members in December 2021.

“As a non-profit, we continue to pass on the benefits of scale to our members,” Simplicity managing director Sam Stubbs said. “And we’re on track for more fee cuts in the future.”

Stubbs was very critical of the excessive profits being made by many KiwiSaver managers.

“The FMA annual KiwiSaver report showed fees in 2022 were $692 million. That’s almost $1.9 million every calendar day,” he said.

“Yet being a KiwiSaver manager requires no statutory capital, and involves huge economies of scale,” he said. “Fee cuts in our industry should be frequent, but they aren’t.”

The June Quarter 2022 Morningstar KiwiSaver survey shows the average asset based fee for conservative funds is 0.63%, Balanced funds 0.86% and Growth funds 1.03%.

Simplicity’s current fee for all its diversified funds is 0.31%, ie. 51%-69% lower than the industry average.

“The maths is tragic, because the numbers suggest that as much as 50% of KiwiSaver fees, which ordinary New Zealanders pay out of their savings, is either profits for the fund managers, or commissions for financial advisors,” Stubbs said.

“That suggests potentially $345 million in excess fees last year,” he said.

“KiwiSaver is a wonderful retirement scheme. But sadly, too many in the finance industry treat it like a trough of fees, with too few benefits of scale passing back to their members,” he said.