KiwiSaver

The Law Retirement KiwiSaver Scheme (LRKS) which is managed by Diversified Wealth Management closed to new members on April 1.

The scheme, for legal professionals, has two funds, with just over $5 million in funds under management and 382 members.

Orginally Diversified was the adviser to the scheme but took over managing it around 18 months ago. Director Vicki Watson said various options were being considered for the scheme’s future and no firm decisions had been made.

She said the increasing regulatory burden of running a KiwiSaver scheme had made LRKS uneconomic to run. Previously she thought critical mass was around $25 million funds under management, but now it was more likely to be around $100 million. Watson says this is likely to increase as new licencing requirements are introduced.

“The compliance costs have become too great for a small fund to survive,” she said.

The Law Retirement Balanced fund has $3.3 million in FUM and 206 members according to its quarterly disclosure statement for the three months to December 31. The average return of the fund was 1.54% annually since March 2009.

The Dynamic Fund has $2.24 million in FUM and 176 members, and an annual average return of 1.15%.

ANZ Investments has received a silver rating for all of the multi-asset class funds in its three KiwiSaver schemes, from research house Morningstar.

“ANZ Investments’ KiwiSaver schemes continue to set the standard for multi-sector investing in New Zealand…we believe they are among the best KiwiSaver options in New Zealand,” Morningstar says.

ANZ Wealth managing director, John Body said: “This is a fantastic achievement and recognises the experience and disciplined processes of our investment management business. Whether investors chose a conservative, balanced or a growth fund, ANZ Investments funds have a silver rating, ranking them among the best in the country.”

Until this year, bronze was the highest rating achieved by multi-asset class funds in a KiwiSaver scheme.

Morningstar said it consider the firm’s knowledge and stable team and the time-tested and repeatable investment process to be truly competitive advantages. “We believe these will continue to add value and provide the foundations for healthy future performance.”

ANZ Investments is New Zealand’s largest KiwiSaver provider in terms of members and funds under management, with more than 585,000 members and $4.8 billion in funds under management.

ANZ Investments has a gold star rating from Morningstar for its single-asset class, International Share Fund in the OneAnswer KiwiSaver scheme.

KiwiSaver fees for the next round of default providers will be significantly lower than those charged at by the schemes at present, particularly for savers with smaller balances.

The new nine default providers, assigned a seven-year term starting on July 1, are required to keep fees “reasonable”.

Sources said the restrictions on default schemes’ fees had been a sticking point for some in negotiations.

The nine default schemes will be run by AMP, ANZ, ASB, BNZ, Grosvenor, KiwiBank, Mercer, Fisher Funds and Westpac.

AMP was charging an annual fixed fee of $35.40 and 0.53% in variable fees for its default scheme last September. From this July, it will charge $23.40 and 0.39%.

OnePath’s default KiwiSaver scheme was charging $33 a year and 0.44% in variable fees. In its new term as a default provider, it will charge $24 and 0.6%.

Mercer’s KiwiSaver fees will change from $34.20 and 0.53% to  $30 and 0.56%.

No default provider will charge more than $30 a year in fixed fees of 0.6% in total variable fees in the new default term.  Those figures include an estimate of any underlying fund fees and expenses.

Bruce Kerr, of Workplace Savings NZ, said there would be pressure on providers to keep fees reasonable. “Whether they have to cut them much depends on the regulator’s view of reasonable.”

Some industry sources suggested that the requirement to provider investor education would be welcomed by the default schemes because it would give them the chance to move savers from low-fee conservative default funds to more expensive options. Many growth funds are charging up to 1% in variable fees and up to $50 a year in fixed fees.

John Berry, of Pathfinder Asset Management, said default providers should be required to pay for the status, and the money used to pay for the regulatory activity of the FMA.

“The benefit is now not as great as it was at the start but the next big thing will be if and when it becomes compulsory. If it’s made compulsory there will be massive value in being a default scheme.”

KiwiSaver funds’ fees stand in the way of them being given a gold rating in Morningstar’s research, its Australasia co-head of fund research says.

Morningstar has just finished its latest round of research, covering nine KiwiSaver providers managing the bulk of the country’s KiwiSaver funds.

Chris Douglas said overall,  New Zealanders should be optimistic about KiwiSaver’s ability to help them save for their retirements.

Morningstar’s research assigns funds with ratings of gold, silver, bronze, neutral or negative. The funds are ranked on their people, process, parent, price and performance.

Douglas said it had never handed out a gold rating to a KiwiSaver fund in the three or four years it had been researching them.
He said part of that was due to the large amounts of movement among the decision-makers in each scheme.

Another issue was fees. “They’re still a bit too high in some cases, especially for a conservative fund. In many cases, you’re paying more than 1% for a conservatively managed KiwiSaver product looking to get mid to high single digit returns. That’s a decent chunk out of someone’s savings.”

Five schemes were awarded silver or bronze awards.

Douglas said that was an increase from the last review and an indication of Morningstar’s increased conviction in them.“We believe there are very good reasons for New Zealanders to be optimistic about KiwiSaver’s ability to help them save effectively for their retirement income.”

AMP KiwiSaver and ANZ KiwiSaver (including OnePath and OneAnswer) were given Morningstar Analyst Ratings of silver, the highest ratings of the strategies covered.

Douglas said Morningstar analysts were impressed by AMP KiwiSaver’s strong investment team, close relationship with the firm’s Australian investment team, and widely-diversified portfolios of assets.

“We believe these characteristics should provide the foundation for strong future performance. The AMP KiwiSaver assets are managed by the former AXA KiwiSaver team, which had an Analyst Rating of bronze before it was closed following its acquisition by AMP.”

Mercer KiwiSaver, Milford KiwiSaver (Conservative and Balanced), and Westpac KiwiSaver received Analyst Ratings of bronze.

Milford Active Growth KiwiSaver was given a rating of silver.

Douglas said none was given a negative rating. He said there were likely some KiwiSaver schemes in the market that deserved one, but not those in Morningstar’s database.