Smartshares cuts cost of investing in ETFs in drive to streamline investment process; Move comes as new kids on the block offering Smartshares ETFs gain traction 

The cost of investing in some funds that track the sharemarket is falling, as competition among investment platforms targeting DIY retail investors heats up. 

The NZX’s Smartshares has reduced its establishment fee for those who invest in any of its 23 Exchange Traded Funds (ETFs) direct.

While investors previously had to pay $30 for each fund they bought units in, they now only have to make a one-off payment of $30 regardless of the number of ETFs they invest in.

So if you wanted to invest in the NZ Top 50 fund, the Emerging Markets fund and the Aus Resources fund, you previously had to pay $90 to do so. You would now only have to pay $30.

Smartshares’ move follows the establishment of two New Zealand-based investment platforms this year - Invest Now and Sharesies.

The fees

Investors can buy units in a selection of seven Smartshares ETFs through Invest Now without paying an establishment fee. Meanwhile through Sharesies, they can buy units in a selection of nine Smartshares ETFs for a flat fee of $30 a year.

Investors will always have to pay Smartshares a fund charge (0.33%-0.75%) regardless of the platform they invest through.

Neither Invest Now nor Sharesies charge brokerage fees if investors sell units in their funds.

However those who invest direct through Smartshares need to use a broker to sell units, which will always incur a fee.

Competition looks to be warming up in this space too, with ASB Securities (one of the main online brokers in New Zealand) recently halving its fees for New Zealand transactions under $1000, to $15.  

Both Invest Now and Sharesies make their money by charging fund managers for hosting their funds. Sharesies only has two other funds available in addition to the Smartshares ones, while Invest Now has 73.

People have invested $7 million through Sharesies since its beta version launched in June. Invest Now, which launched in March and is in the process of buying Rabo Direct’s managed funds business, has over $100 million under management.

Smartshares has $2.1 billion under management, with $1.4 billion of this coming from its SuperLife funds.

The experience

Asked about the extent to which increased competition has spurred Smartshares to cut its establishment fee, Smartshares product manager Dean Anderson says: “Each of the platforms are offering their own functionality…

“Everyone in the industry is going to be keeping an eye on technology - not only to improve operations, but to deliver what customers expect.”

He says the main reason behind the cut is for the fee structure to fit in with Smartshares’ new online portal for investors, launched a week ago.

The idea is that investors will now be able to add new ETFs to their portfolios with a click of a button, rather than filling out a new application form.

Anderson says the aim is to streamline the process both internally and for customers. He says this is something the growing number of EFT investors had been asking for. 

With the bulk of Smartshares ETF investors making regular contributions to their investments through a “savings plan”, Anderson's focus is on this segment of customers.

Accordingly, the new portal also makes it easier for investors to administer their regular investment plans without contacting Smartshares, as well as make lump sum contributions.

Invest Now also has an auto invest function. Sharesies says this is something it is still working on.

Its key focus has been building a platform that walks first time investors through the investment process.

It has a fun and user-friendly interface and presents information in a unique way - by charting how investors’ portfolios are spread across different risk levels for example.

For Invest Now, its focus is now on looking at ways to help investors better weigh up their options in the “funds supermarket”, without going down the path of providing personalised financial advice.

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?

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15 Comments

It's good to see Smartshares drop the individual fund establishment fee and update it's online portal, but it's too little too late. There's no real point investing through Smartshares now if the funds you want are offered by Sharesies or InvestNow. You can also do an off-market transfer from Smartshares to InvestNow for ETFs that are offered on both platforms.

Also, ASB halving its brokerage fees for us plebs with not a lot of capital is fantastic! It's now a lot cheaper and easier to get your hands on some stocks for individual NZ companies without having to resort to ETFs.

ASB have shown they are more competent at technology than ANZ but I still find it surprising they were able to make a change to drop their fees that quickly in response to heating competition. It significantly improves my perspective of them... it will still make it tough to offer the same platform with the competition about but I suspect that will change as well, (perhaps I should touch base with the canaries to find out what is in the pipeline).

The management fees for smartshares are double what they should be. You can buy a global Vanguard NZD denominated fund via InvestNow for 0.2% yet Smartshares are charging up 0.56% for their similar Total World Fund.

This is a key point. Smartshares' management fees are higher than their international counterparts. 

The total fees of InvestNow are not very clear. I ordered some Vanguard shares and there appears to have been a foreign exchange conversion, there is certainly room their for them to skim a little off the conversion. When you buy smartshares through InvestNow they seem to take 2 units as a fee according to their FAQ.

Hi Bilbo

I assume you are referring to our FAQ on processing of Smartshares orders (https://investnow.co.nz/faq-items/smartshares-etfs-buy-sell-orders-proce...).

I can confirm that we do not charge any fees for the InvestNow service.

Unlike other funds we offer, where buy orders are placed for a dollar value, Smartshares orders are placed in units. Also, unlike the other funds we offer, Smartshares are not available in partial units.

Because of these two characteristics, buy orders for Smartshares are processed as follows:

1). We need to allow for a scenario where the unit price increases between the time when you load your order and when it is traded by our broker. In such a situation, you would over spend.

2). The Custodian will instruct the broker to spend the amount you have requested less circa 2 times the unit price of the specific Smartshare.

Any residual funds from your purchase will appear as available cash in your InvestNow Transaction Account.

I trust this makes sense? Feel free to get in touch on 0800 499 466 or contact@investnow.co.nz if you have any further questions on this, or any other matter.

Regards

Mike Heath
GM - InvestNow

Thanks Mike,

That makes sense.

Can you tell me if there is any fee when ordering Vanguard shares? I noticed there is a currency conversion - is that executed using the market rate?

Bilbo

Being Australian Unit Trusts (AUTs) there is a foreign exchange component to the transactions, however we have secured "near-wholesale" rates to keep the cost as low as it possibly can be. Because we do not charge any fees, we also pick up the one-off foreign exchange transaction fee each time an customer buys an AUT.

Regards

Mike Heath
GM - InvestNow

Hi Mike Will InvestNow offer the new AMP Capital index funds? It looks like they have lower fees Smartshares.

Hi George

Yes, and in fact we have just added them this afternoon (https://investnow.co.nz/award-winning-managed-funds/fund-search/?_sft_fu...)

Regards

Mike Heath
GM - InvestNow

Hi Mike,

If I transfer my fund holdings in Smartshares to InvestNow will those investments disappear from the Link Market Services Dashboard? I also have a number of investments in individual companies and I'd like to track all my equity investments in one place.

Hi Chris, yes that's correct. Once you we have completed your Off Market Transfer for the Smartshares units, they will only be "visible" in your InvestNow portfolio.

Regards

Mike Heath
GM - InvestNow

The falling fees are good to see. However they're still quite high in a global context.

Enough to drive you offshore

Not really - offshore funds are not PIEs which save you the equivalent of 0.25% in fees and you probably lose 1% in FX transactions both ways.

Now it would be Wunnerful, would it not, to see an article with the following headline:

"Building Costs come down as competition among Materials Suppliers heats up"

Just don't Bet the Farm on ever seeing it....