The Financial Markets Authority (FMA) has released a number of materials in the past month. We have chosen to share some of these, along with some brief comments regarding our thoughts. We hope you find something of interest below.
KiwiSaver fees and value for money
The FMA has opened consultation on guidance for KiwiSaver fees. Part of this guidance will focus on each provider's obligation to not charge unreasonable fees. This follows logically from the ongoing obligation for providers to act in the best interest of their clients.
When the KiwiSaver Act was introduced in 2006, the long-term expectation was for fees to fall as economies of scale reduced costs for providers. Clearly this hasn't happened to the extent the FMA would like.
Currently, according to the Sorted KiwiSaver Fund finder, fees for a balanced fund range from 0.36% with Juno and 0.45% with Simplicity, all the way to 1.82% p.a. for AMP's Global Multi-Asset Fund (leaving out the Amanah fund, created to be Shari'ah compliant).
Higher fees mean lower returns for investors, so it is important these fees are commensurate with the services provided. A recent FMA report suggests this has not been the case in NZ, with the amount of active management in a KiwiSaver fund having little relationship to fees charged.
We look forward to reading the final guidance notes, which will outline cases in which fees are considered unreasonable. Long-term, we hope this leads to better KiwiSaver outcomes for New Zealand investors.
Investing Q&A with Mary Holm and Gillian Boyes
For world investor week, one of our favourite journalists Mary Holm answered questions from investors alongside Gillian Boyes from the FMA. The full Q&A session was uploaded to YouTube for all to enjoy. For your convenience, we have listed the questions asked in order below.
1:00 - Thoughts on current state of investing
2:00 - Retiree considers land-banking
4:20 - Who holds your money in an index fund?
6:00 - Pay mortgage or invest?
9:35 - Holding on to Bonus Bonds
10:50 - How can retirees make the money last?
12:05 - How to buy shares for grandchildren
13:20 - Thoughts on ethical investing
15:50 - Tips for new investors
19:10 - Alternatives to shares and managed funds
20:50 - Uni student with $30k to invest
22:30 - Invest maturing term deposits in KiwiSaver?
23:40 - Older investor wanting higher returns
24:55 - Difference between managed funds and PIEs
26:00 - Investing funds needed for a house purchase
28:00 - Minimum investment needed for investing?
29:05 - Thoughts on a home bias in shares
31:45 - How advisers fit into investor's lives
33:35 - Where to invest an inheritance?
34:40 - Savings for kid's educations
37:20 - Investing habits for men and women
40:10 - How to judge a provider's "reputation"?
42:45 - High fee managed fund vs term deposits?
44:45 - Comparing the performance of funds
45:55 - Graduate paying back student loan
48:00 - Concerns regarding property prices
50:35 - How to know whether a product is regulated?
52:25 - Property vs KiwiSaver
53:55 - 8% KiwiSaver contributions or 3%?
57:00 - Cannot afford a financial adviser
2020 KiwiSaver Report
Each year, the FMA publishes a report on the state of KiwiSaver, using data from providers. The 2020 KiwiSaver Annual Report was released last month.
The total funds under management in KiwiSaver has increased by $62B(!) for the year, an increase on last year's $57B. This is despite negative investment returns over this period. We have also seen an increase in withdrawals, both for retirement and first home purchases.
Unsurprisingly, the number of "fund switches" has also increased by 54%. For most KiwiSaver members, this year has been the first in which their balance has significantly dropped. Unfortunately, many of these investors were switching from aggressive funds to conservative during the challenging first quarter, locking in losses while missing out on subsequent gains.
KiwiSaver began in 2006, a year before the Global Financial Crisis. While the GFC brought an extended period of uncertainty and investment losses, the value of KiwiSaver funds today is many times more than in 2007. No wonder many investors were unsettled enough to switch out of highly volatile aggressive funds.
For those that stayed the course, their KiwiSaver balances are likely back to where they were at the start of the year.