High KiwiSaver fees hard to justify

The FMA-commissioned report found average KiwiSaver fees have increased over the past eight years, despite management costs likely to have fallen significantly.

Consumers should be benefitting from the drop in fees charged by offshore fund managers, as many KiwiSaver schemes have significant investments in these funds. But that hasn’t happened.

According to the report, a DIY investor could build a balanced portfolio of shares and fixed interest investments, and pay less in fees than what KiwiSaver schemes charge.

Last year alone, KiwiSaver providers earned $479.8 million in fees, up 15 percent on 2018. Our annual KiwiSaver satisfaction survey shows high fees haven’t resulted in quality service.

Management style

What you’re paying in KiwiSaver fees may also bear no relation to how hands-on the fund manager is in looking after your money.

The report found several schemes were charging high fees despite adopting a “passive” management style. Passive management follows the market leaders, with investments typically held in index tracker funds. In contrast, active management aims to outperform the market.

You might expect to pay more for active management but the report found it can be offered without higher fees. It didn’t name names but said one active provider had the lowest fees in the market, while one “mainly passive” provider was charging well above the average.

Liam Mason, FMA director of regulation, said the report found there’s “not a significant relationship between the level of active management employed by providers and the fees they charge”.

Some are offering expensive funds that aren’t actively managed and “appear to be poor value for money”.

Providers of these funds can expect a call from the FMA. The authority also intends to publish industry guidance, reminding companies that fees must not be “unreasonable”.