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).
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.
|AXA Income Plus||5.6||4||0.53|
|Tower Cash Enhanced||5.6||4||0.58|
|AXA Income Plus||5.6||5||0.53|
|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|
|FirstChoice Tracker Conservative||5.5||22||0.52|
|OnePath Conservative Balanced||7.3||9||0.59|
|FirstChoice Active Conservative||5.7||20||0.83|
|Aon Russell LifePoints 2015||9.4||1||1.06|
|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|
|National Bank Conservative||6.6||12||1.15|
|ANZ Conservative Balanced||7.4||8||1.15|
|Fisher Funds Conservative||3.5||23||1.5|
|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|
|FirstChoice Tracker Moderate||7.1||8||0.52|
|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|
|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|
|National Bank Balanced||8.1||4||1.20|
|Aon Tyndall Balanced||6.2||13||1.26|
|Forsyth Barr Balanced||2.4||17||1.49|
|FirstChoice Tracker Balanced||7.5||14||0.56|
|OnePath Balanced Growth||7.7||12||0.68|
|FirstChoice Active Balanced||5.8||23||0.90|
|Mercer Super Trust Active Balanced||7.5||14||1.05|
|AMP OnePath Balanced||8.6||7||1.08|
|OnePath SIL Balanced Growth||9.1||2||1.08|
|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|
|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|
|FirstChoice Tracker Growth||7.5||12||0.59|
|Mercer High Growth||7.6||10||0.9|
|FirstChoice Active Growth||5.3||14||0.97|
|Milford Active Growth||9.5||2||1.02|
|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|
|Aon Russell LifePoints 2045||8.2||7||1.30|
|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.