Do you know what you're paying in fees? We look at total expense ratio across a category of KiwiSaver funds. Your view?

Do you know what you're paying in fees? We look at total expense ratio across a category of KiwiSaver funds. Your view?

By Amanda Morrall

Fees in KiwiSaver remain one of the most controversial aspects of the saving scheme.

That's because there is no consistency in the way fees are calculated or reported giving investors little sense of how much of their earnings get eaten away by the myriad of expenses claimed by fund managers. (For a break down of the fees and a look at the new reporting scheme, listen to this interview with Morningstar NZ's Chris Douglas talking to Amanda Morrall).

To estimate your fees in KiwiSaver over the course of the investment see this calculator by Sorted.org.

New regulations are due to take effect next year correcting this glaring shortcoming of the savings scheme.

In the meantime, it is incumbent upon individual investors to read their statements closely and also compare them with others for the sake of relativity.

To simplify the process, we decided to rank the most common fund groups (default, conservative, moderate, balanced, growth and aggressive) by their respective annual Total Expense Ratio (TER) as calculated by Morningstar NZ as at 31 March 2011. Appreciating the fact that fees can not be judged in isolation from performance, we have also included our calculated three year adjusted performance data (as at 30 June 2012).

The tables below show a huge range in fees, from 0.36% for ASB's Conservative default fund at the lowest end, to 2.43% for Fisher Fund's growth fund.

Some important considerations to bear in mind: direct comparisons should not be made between different peer groups because their asset allocations are starkly differently. Also, in the case of Fisher Fund's growth fund, the total expense ratio appears abnormally high because of a performance fee that was applied for that reporting period.

We are expecting the TER for Fisher Fund's growth fund to come down in the coming periods as the performance fee, although accounted for, was not actually paid. 

Fisher Fund calculates the fund's normal expense ratio at 1.15% and points out above average performance. It has also revised its benchmark for the invocation of a performance fee subsequent to a guidance note issued by the Financial Markets Authority. The performance fee (which is over and above the regular investment fee) kicks in if the fund managers earn a return 5% or more on top of the Official Cash Rate, which at the moment is 2.5%. So if the fund returns 7.5% or more, the fund managers collect 10% of the excess.

Can we say that performance justifies the fee? There is no blanket rule. In some cases it will and it some cases it won't.

Individual investors ought also to weigh these two factors against their personal appetite for risk and time frame for investing.

The following information on fees and performance is presented here simply with the intention of showing the variation in fees within and across the groups and also the returns.

Default

3 year Rank TER*
ASB Conservative 5.8 3 0.36
AXA Income Plus 5.6 4 0.53
OnePath Conservative 6.9 2 0.54
AMP Default 4.3 6 0.54
Mercer Conservative 7.0 1 0.57
Tower Cash Enhanced 5.6 4 0.58

 

Conservative 3 year Rank TER*
ASB Conservative 5.8 4 0.36
Tower Preservation 2.6 13 0.53
AXA Income Plus 5.6 5 0.53
AMP Default 4.3 9 0.54
OnePath Conservative 6.9 3 0.54
Mercer Conservative 7.0 2 0.57
Tower Cash Enhanced 5.6 5 0.58
Grosvenor Enhanced Income 3.1 11 0.82
Fidelity Capital Guaranteed 4.0 10 0.98
Westpac Capital Protection Plan No. 1 5.6 5 1.56
Westpac Capital Protection Plan No. 2 n/a n/a 1.57
Staples Rodway Conservative 2.7 12 n/a
Forsyth Barr Premium Yield 5.4 8 n/a
SuperLife The D Fund 8.5 1 n/a
Westpac Capital Protection Plan No. 3     n/a
Westpac Capital Protection Plan No. 4     n/a

 

Moderate 3 year Rank TER*
FirstChoice Tracker Conservative 5.5 22 0.52
OnePath Conservative Balanced 7.3 9 0.59
Westpac Conservative 6.1 16 0.74
AMP Conservative 5.9 18 0.82
FirstChoice Active Conservative 5.7 20 0.83
AMP Moderate 5.8 19 0.92
Tower Conservative 7.0 10 0.92
Aon Russell LifePoints 2015 9.4 1 1.06
Grosvenor Conservative 6.6 12 1.07
AXA Conservative 6.0 17 1.08
Fidelity Conservative 5.7 20 1.11
OnePath SIL Conservative Balanced 7.9 4 1.11
OnePath SIL Conservative 6.9 11 1.12
Aon Russell LifePoints Conservative 9.2 2 1.13
ANZ Conservative 6.5 15 1.15
National Bank Conservative 6.6 12 1.15
ANZ Conservative Balanced 7.4 8 1.15
Fisher Funds Conservative 3.5 23 1.5
Craigs Conservative 3.1 24 n/a
Mercer Super Trust Conservative 6.6 12 n/a
National Bank Conservative Balanced 7.5 7 n/a
SuperLife Trustee 60 7.7 6 n/a
SuperLife AIM First Home 7.9 4 n/a
SuperLife AIM 30 8.2 3 n/a

 

Balanced 3 year Rank TER*
ASB Moderate 7.4 7 0.45
FirstChoice Tracker Moderate 7.1 8 0.52
OnePath Balanced 7.5 6 0.63
Mercer Super Trust Moderate 7.0 9 0.85
AMP Tyndall Balanced 7.0 9 0.90
AMP Moderate Balanced 5.7 14 0.95
AMP Tower Balanced 6.9 11 0.96
Tower Balanced 6.4 12 0.99
Milford Balanced -0.4 18 1.07
Aon Russell LifePoints Moderate 9.1 1 1.12
Aon Russell LifePoints 2025 9.0 2 1.15
OnePath SIL Balanced 8.4 3 1.16
Grosvenor Balanced 5.5 15 1.17
ANZ Balanced 8.1 4 1.19
Fidelity Balanced 4.6 16 1.20
National Bank Balanced 8.1 4 1.20
Aon Tyndall Balanced 6.2 13 1.26
Forsyth Barr Balanced 2.4 17 1.49

 

Growth 3 year Rank TER*
ASB Balanced 7.8 11 0.44
FirstChoice Tracker Balanced 7.5 14 0.56
OnePath Balanced Growth 7.7 12 0.68
Mercer Balanced 7.7 12 0.80
Westpac Balanced 6.6 19 0.81
Westpac Growth 6.9 17 0.86
FirstChoice Active Balanced 5.8 23 0.90
AMP Balanced 6.0 21 0.95
AMP Growth 5.5 24 0.99
Mercer Super Trust Active Balanced 7.5 14 1.05
AXA Balanced 5.9 22 1.07
AMP OnePath Balanced 8.6 7 1.08
OnePath SIL Balanced Growth 9.1 2 1.08
Tower Growth 6.8 18 1.14
Mercer Super Trust Growth 7.3 16 1.14
Aon Russell LifePoints Balanced 8.9 4 1.16
Aon OnePath Balanced 9.3 1 1.20
Aon Russell LifePoints 2035 8.6 7 1.22
Grosvenor Balanced Growth n/a n/a 1.22
ANZ Balanced Growth 8.7 6 1.24
National Bank Balanced Growth 8.8 5 1.24
Aon Russell LifePoints Growth 8.3 9 1.25
Brook Professional Balanced 2.7 28 1.26
Grosvenor High Growth 3.0 27 1.27
Fidelity Growth 4.0 26 1.27
Forsyth Barr Growth 1.5 29 1.56
Craigs Balanced SRI 4.8 25 n/a
Staples Rodway Growth 6.1 20 n/a
SuperLife AIM 60 8.1 10 n/a
Staples Rodway Balanced 9.0 3 n/a

 

Aggressive 3 year Rank TER*
ASB Growth 7.8 8 0.44
FirstChoice Tracker Growth 7.5 12 0.59
OnePath Growth 7.8 8 0.73
Mercer High Growth 7.6 10 0.9
FirstChoice Active Growth 5.3 14 0.97
Milford Active Growth 9.5 2 1.02
AXA Growth 5.2 16 1.03
AMP Aggressive 5.3 14 1.06
FirstChoice Active High Growth 3.4 19 1.13
Mercer Super Trust High Growth 7.3 13 1.19
National Bank Growth 9.2 3 1.24
OnePath SIL Growth 9.6 1 1.26
Grosvenor Geared Growth -0.5 20 1.27
Brook Professional Growth 3.5 18 1.28
ANZ Growth 9.2 3 1.28
Aon Russell LifePoints 2045 8.2 7 1.30
Fidelity Aggressive 4.7 17 1.31
Aon Milford 9.1 5 1.39
Fisher Funds Growth 8.3 6 2.43
SuperLife AIM 80 7.6 10 n/a

* as at 31 March 2011 as calculated by Morningstar NZ

As we have alluded to, investors need to be cognisant of the impact fees are having on the overall return over the long-term.  The data above highlights that KiwiSaver providers should not be selected solely on how much they charge as there is no strong direct correlation between cost and performance. 

Readers should consider a wide range of factors such as: the underlying management style (active versus passive for example); the asset allocation; the reputation of the provider; the size of the provider and the types of communications received from the provider - just to name a few.

We also recommend readers seek advice from an Authorised Financial Adviser to assist them in selecting the scheme provider and fund which matches their risk profile and investment objectives.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

4 Comments

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Highlight new comments in the last hr(s).

Cheers Amanda. Interesting to see there were some pretty good returns in the last 3 years, but then the sharemarket has bounced back from it's post-GCF lows in the last few years. If the market is in for a 'correction' particularly if AAPL takes a dive, it will be interesting to see how each fund holds up.

Any idea of what some basic Index-tracking returns would be in the same time as a comparison?

Plenty of good returns for fee's < 0.5% which is good to see.

No probs. KiwiSaver was introduced just at the start of the GFC. Through the worst of it, default funds proved the best overall performers by peer group.. FYI.I will be talking to someone on Friday about ETFs. Cheers.

SGV
Looking at the ishares.com website as an example using the MSCI All World Country Index (AWCI) in US$ this ETF had a total return for 3 years of approx 10.5% to end of June - annualised this is roughly 3.4% per annum.
http://us.ishares.com/product_info/fund/performance/ACWI.htm
This is just one comparison and will largely depend on what global index you want to look at and in what currency etc......
Hope this helps
Craig

wondering if anyone knew what a good kiwisave for kids would be. Looking for minimal fees as there are no contributions. The provider I was roped into using takes more out than what is earned. would like a sheme for kids that is like a term deposit (no fees but lower interest rate) anyone have any ideas would be greatly appreciated