Opinion: Craig Simpson reviews BNZ's KiwiSaver scheme and compares the fees to other bank KiwiSaver schemes

BNZ has announced its long awaited KiwiSaver scheme will officially launch on February 25. See an interview with acting BNZ CEO Anthony Healy here.

As we know when KiwiSaver started BNZ was one of the notable exceptions from the initial list of scheme providers, having opted to offer the AXA scheme for retail client’s and AMP’s scheme for business customers.  I am sure BNZ's management in days gone by now quietly regret this move given how successful KiwiSaver has been.

BNZ has had five and a bit years to survey the market, learn from other’s mistakes and design a compelling proposition, and with this in mind I was expecting something with some ‘wow’ factor and not your usual run of the mill KiwiSaver product.

Unfortunately what I am faced with is an outsourced product re-badged as BNZ KiwiSaver. The fees are not cheap compared to other bank KiwiSaver schemes and the only immediate feature which may appeal to mainstream New Zealand is the ability to access their BNZ KiwiSaver Scheme via internet banking and having visibility of their KiwiSaver balance alongside their other bank accounts.

Although I am myself a BNZ customer, my current KiwiSaver scheme allows me to access my KiwiSaver balance via a secured login 24/7. I can set up regular savings, change the investment mix, get statements of my regular contributions and basically do everything BNZ is offering under its scheme.

Because I am in a non-bank aligned scheme the only difference between what I have now and what BNZ is offering me is I cannot see my KiwiSaver balance next to my bank accounts, but really is this a big deal?

KiwiSaver is a long-term saving plan and I should not be checking my balance every other day anyway, so theoretically it should not matter how accessible it is.

I personally see this feature as being more of a nice to have. Others however, may want the whole one stop shop experience and this feature will certainly appeal.

Another feature which will appeal to some of BNZ's existing customers is the intention to register as a Qualifying Recognised Overseas Pension Scheme ("QROPS"). QROPS is a designation given to schemes which are approved by Her Majesty's revenue and Customs in the UK to accept transfers of funds from UK pension schemes on behalf of individuals without automatic UK tax consequences.

Transfers to the BNZ KiwiSaver Scheme will be governed by the terms and conditions of both the BNZ scheme, the UK pension scheme conditions will no longer apply. This may be advantageous for those ex-pats returning home or those emigrating to NZ from the UK.

Management outsourced to Russell Investments

BNZ has outsourced management of the scheme to Russell Investments. Russell started in 1936 and today has over 20 offices worldwide and approximately NZ$200 billion under management globally.

For BNZ, Russell will provide four core strategies which have various asset mixes depending on the investor’s tolerance to risk. BNZ also offers one Cash portfolio which is mandated to invest solely in BNZ term deposits or BNZ short term securities.

Russell is responsible for choosing the individual fund managers and implementation of the multi-manager strategy in line with their research and views on various asset classes.

The benchmarks are set by Russell and they have the ability to have a tactical tilt away from the benchmark. These tilts will generally be +/- 4% from the benchmark.

A truly active manager will possibly take larger positions away from the benchmark depending on their conviction towards an asset class, region, sector or industry.

Each of the four core portfolios has exposure to the main investment sectors, although they do not have a specific exposure to property. Property exposures can be gained via the allocation to Australasian or global equities. 

Outsourcing of the investment management to Russell is in my opinion is a clear vote of no confidence in the abilities of National Australia Bank (NAB) or any of their subsidiary companies. NAB own MLC and JANA who could have provided both asset allocation and investment advice to BNZ. You would also expect BNZ could have negotiated some sharp rates from their Australian partners too.

For those unfamiliar with MLC and JANA, MLC is a funds management business owned by NAB and offers a multi-manager superannuation solution to Australians. JANA is a wholly owned subsidiary of NAB and considered one of Australia's leading investment consultancy firms. 

JANA has also recently begun advising clients in New Zealand and are therefore familiar with our investment landscape.

With BNZ outsourcing the management to an external organisation they are effectively robbing themselves, their parent and ultimately NAB shareholders of potential profits.

Best of breed?

Everyone believes they offer a best of breed solution for customers. It is a term that is often used and abused in New Zealand and is incredibly subjective.

Different institutions have their own qualitative and quantitative measures in order to select their investment universe and the underlying managers or securities.

Russell’s core strength lies in its ability to offer clients a multi-manager, actively managed solution which utilises best of breed fund managers from around the world.

We will have to wait and see BNZ get a track record before we can assess whether the Russell-led strategy is truly best of breed

Total expense ratio (TER) compared to other bank KiwiSaver schemes.

What everyone wants to know is how do the fees stack up. One measure used to assess the total fees payable is the Total Expense Ratio (TER).

TERs are expressed as a percentage and the calculation includes any performance fees paid to either the manager or any of the contracted sub-managers.

To compare the various main bank (ANZ, ASB & Westpac) offerings we have compiled the following table based on data published by Morningstar. We have only reported ANZ's numbers as the TER for the separate National Bank KiwiSaver is the same as ANZ's. I have also grouped the schemes in the same categories that Morningstar have assigned for consistency sake.

I have estimated what the TER could be for BNZ’s scheme based on the fees disclosed in the investment statement and making an assumption about any additional fees yet to be disclosed but are likely to exist.

We have compared TER’s across four portfolio types Conservative, Moderate, Balanced and Growth so readers can make a direct comparison between the various bank offerings.

Conservative Portfolio Headline Management Fee Total Expense Ratio (TER) Benchmark Income/Growth split
ANZ Conservative Fund 0.85% 1.11% 80/20
ASB Conservative Fund (default) 0.40% 0.40% 80/20
BNZ Conservative Fund (est.)* 0.70% 0.94% 75/25






Moderate Portfolio Headline Management Fee Total Expense Ratio (TER) Benchmark Income/Growth split
ANZ Conservative Balanced Fund 0.85% 1.10% 65/35
ASB Moderate Fund 0.60% 0.60% 60/40
Westpac Conservative Fund 0.55% 0.83% 75/25
BNZ Moderate Fund (est.)* 0.90% 1.14% 65/35







Balanced Sector
Headline Management Fee Total Expense Ratio (TER) Benchmark Income/Growth split
ANZ Balanced Fund 0.90% 1.15% 50/50
ASB Balanced Fund 0.65% 0.65% 40/60
Westpac Balanced Fund 0.65% 0.91% 40/60
BNZ Balanced Fund (est.)* 1.00% 1.24% 50/50







Growth Portfolio
Headline Management Fee Total Expense Ratio (TER) Benchmark Income/Growth split
ANZ Balanced Growth Fund 0.95% 1.20% 35/65
ANZ Growth Fund 1.00% 1.24% 20/80
ASB Growth Fund 0.70% 0.70% 20/80
Westpac Growth Fund 0.70% 0.96% 25/75
BNZ Growth Fund (est.)* 1.10% 1.34% 30/70








* The BNZ numbers are estimates only. In this calculation I have allowed for only 50% of the Trustee Fee (0.04% p.a.) to be allocated to the fund with the balance being picked up by BNZ as part of the management fee. The annual member fee of $24 p.a. has been converted to a percentage assuming a balance of $10,000. Additionally there is an extra 0.20% allowed for in the calculation to cover items which are currently not expensed within the fund or picked up by BNZ as part of their management fee.

The 0.2% in additional fees is a guide only and is currently what AON (who also uses Russell Investments for their KiwiSaver scheme) allow for additional costs and we believe this is a fair expectation. ANZ for example by comparison list other fees and expenses in their investment statement as totaling 0.17% as at 31 March 2012.

No allowance has been made for GST or tax.

Left feeling underwhelmed and like I need something else

On balance after having five years to survey the market and design a product with wow factor I am left underwhelmed by what I have seen.

A large part of what I am feeling I believe is due to the FMA decision to kibosh the original mortgage offset features which would have set BNZ's offering apart from the market.

What is left is a watered down version of the original KiwiSaver scheme.

The fees are not overly cheap due to outsourcing of the investment management services and not all the fees are disclosed in the investment statement (yet).

In fairness the additional expenses will not be known until after the first year of trading, however for comparative purposes I have assumed 0.20% in additional fees should be added to the disclosed fees to give an estimate of the likely expenses.

I will be an interested spectator to see if the returns match the mediocrity of the product or provide me with the wow factor I have been looking for.


Craig Simpson is a Senior Analyst at interest.co.nz but previously worked for BNZ Private Bank for 9½ years, and held the position of Partner - Portfolio Management.

Before leaving BNZ in 2010 he was a business analyst within BNZ's 2015 Wealth & Private Bank programme which was looking at redefining Private Bank's wealth proposition.

He is also a BNZ customer and NAB shareholder. 

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Agree, this is very poor really, the idea of BNZ taking a layer of fees, Russell taking a layer of fees and then the sub managers taking a layer of fees is so inefficient.

In New Zealand Russell offers PIE's and below is a selection of the fees.
Russell Investments NZ Fixed Interest Fund 0.60% p.a.
Russell Investments Global Fixed Interest Fund 0.65% p.a.
Russell Investments Australasian Shares Fund 1.20% p.a.
Russell Investments Global Shares Fund 1.30% p.a.
Russell Investments Hedged Global Shares Fund 1.30% p.a.
For the Conservative Fund if you assume BNZ got 50% discount on the above retail rates, assume a margin of 0.1% for cash allocations which go to BNZ as per mandate and you do a weighted average fee calc using the benchmark weightings as per the prospectus BNZ's "margin" is somewhere close to 0.25% of the total FUM. For every $100mln they get $250K (at least)
Using my rough back of the envelope calculation the margin/profit is about the same for the moderate and balanced offering and about 0.12% for the most aggressive option.