By Amanda Morrall
Next April, KiwiSaver providers will be held to a uniform set of standards and rules about how and what gets reported to the more than 1.9 million members now enrolled in the national savings scheme.
Morningstar NZ's Chris Douglas heralded the changes which will require providers to produce quarterly disclosure statements for the fund they manage. At present, providers are only required to produce an annual report for investors and there is no single methodology or framework used with respect to what gets reported and how it is calculated.
"The great thing about what we'll be seeing is that it's mandated,'' said Douglas.
"The government is overseeing how it's enforced, its methodology and the robustness around it. And it's universal for everyone, so everyone has to follow the framework that they've put in place."
Under the Ministry of Economic Development's new periodic reporting requirements, KiwiSaver providers will have to publish their quarterly statement 10 days after the end of the quarter. That's in addition to an annual statement which will include an extensive break down of fees and expenses, and performance both gross and net of tax and fees.
The two-page statement will also include information about who the fund managers are, any recent changes in the management structure, the top 10 holdings in the fund and asset allocation. Additionally, providers will have to report how much is invested in the fund in total as well as membership. (For a sample statements see page 19 of this report).
Douglas said the quarterly statement will help to give investors a picture of how a particular fund has performed over a period of time, not necessarily their own investment earnings.
"Essentially what they are doing, by using a hypothetical example, is giving people a greater understanding of the true cost of the fund and the performance and returns that they've had, " he said.
Under a section labelled fees and costs: the entire range of fees paid by a member will be displayed. They include: fees for financial advisors, "servicing investor specific decisions", establishment fees, contribution fees, withdrawal fees, transfer fees, switching fees and special request fees.
"These are a lot of ways that fund managers can charge investors and this is just a great way for people to see it,'' said Douglas, adding that not all providers charges such fees.
"On the plus side, a lot of KiwiSaver providers will say there are no fees when it comes to establishing, contributing and transferring so whilst it must look a bit scary now, you'll find in many cases the value of the dollar is zero for many providers but if they have it they do have to report it.''
The total fee load will also be charted since inception so investors can see any movements up or down.
Top 10 investments
Another new feature of the quarterly statement will be a break down of the top 10 portfolio holdings and also their respective credit ratings.
Douglas said this aspect of the statement would help investors to see not only what they are invested in but the extent to which the fund is being restructured from quarter to quarter.
"The reality is that for a lot of KiwiSaver funds out there you are going to find a lot of these funds have hundreds of holdings so the top 10 holdings won't be overly illustrative of where the chunkier exposures are when you add them all up but it gives people a nice idea of the type of fund they are invested in and the holdings."
Other data points mentioned in the report include:
Liquidity ratio: how quickly the fund would be able to be sold down if it needs to
Gearing ratio: how much, if any, the fund manager has borrowed to invest in assets
Portfolio turnover: how often the fund manager is buying and selling stocks.
"Interesting data points but a bit more complex for the average investor to understand,'' adds Douglas.
Significant changes : where there's been a product change or a mandate change within the fund.
Key personnel: the individuals overseeing the fund and or managing the assets.
"I think this is really important,'' explains Douglas.
"At the end of the day, when you're investing in a KiwiSaver product, you're investing with an investment team who are going to be following their process and philosophy of the provider and you don't want to see too much turnover. But at the moment there is no disclosure on who the people are that are running the fund. You'll even have to show the previous position of the key portfolio manager, how long they've been there and their past experience even."
In case where the fund is managed overseas, the New Zealand manager with the executive decision making process will be named.