Reading the Herald yesterday, a headline stood out to me: KiwiSaver providers told to review fees annually by regulator. It contained more bad news for active managers.

Since the introduction of KiwiSaver more than a decade ago, the FMA has expected fees to drop over time. The expectation was based on costs decreasing as asset bases grew and strong competition in the market.

While fees have decreased somewhat, with many providers introducing cheaper options, the average fee is 1.11% p.a. We believe this is still high given the limited services offered and the FMA seems to agree. They haven't introduced a solid definition of what constitutes an unreasonable fee, but have warned providers they may be starting to take a more hands-on approach.

Despite the headline, this is not the juiciest part of the article. The FMA's research, published in an annual report, found:

• Managers are not passing on scale benefits to members;

• No systemic relationship between fees charged and the degree of active management;

• Active managers do not typically beat their benchmark index after fees.

Managers are being told to complete annual reviews to cover the first two points. The third is just part of being an active manager unfortunately.

It seems unlikely for providers to lower fees without a strong-armed approach from the regulator. Another article, released today, discusses this point. Regarding the FMA's recommendations, Simplicity CEO Sam Stubbs says:

"In a sense it was a good thing but in another sense [the FMA] have also admitted this is a problem they have failed to address. It hasn't been solved in the 12 years [KiwiSaver has been around]."

While fees and services are at the forefront of conversations, we believe it may be more important to discuss the continued failure of active managers to beat their benchmarks.

A common claim by active managers and their proponents is active beats passive in a falling market. The idea here is, while passive investors stay in their seat while shares go down, active investors can nimbly jump in and out, avoiding the losses while getting in on the upswing.

Last year, we saw share markets around the world decrease in value by around a third in only a month. Were active managers able to dodge this tumultuous period? Standard and Poor's Index vs Active report has been released for last year and it doesn't look pretty:

• 60% of US managers failed to beat their index, 75% over 5 years;

• 87.5% of Canadian managers failed to beat their index, 99% over 5 years;

• 56% of Australian managers failed to beat their index, 82% over 5 years.

So active hasn't worked in other parts of the world, but I am still hearing how NZ's smaller market is less efficient. Now the FMA is saying active hasn't worked in the KiwiSaver space.

When will the excuses run out and everyone agree active is a costly, risky and ineffective way to invest? Don't expect it anytime soon!