As KiwiSaver balances continue to swell the scheme is becoming a cash cow for investment managers, prompting one industry observer to question why there is not more downward pressure on fees.
“Some of these managers are generating $100 million in fee revenue now, but we haven't really seen fees go down to what you'd expect in a much larger market like Australia or the US, with that sort of revenue stream,” says Paul Brownsey, who co-founded Pathfinder alongside John Berry and was its CIO before leaving the company a year ago.
The December quarter Morningstar KiwiSaver survey, released in February, offers the latest estimates of providers’ annual fee revenue although the research house warns against relying on the numbers as proof of how much money a particular fund manager is making from KiwiSaver. However, Morningstar calculates that the five largest KiwiSaver providers, ANZ, ASB, Fisher, Westpac and Milford will collect more than $650 million in fees in 2025 from KiwiSaver members, at an average fee of around 0.80 of a cent per dollar invested.
“There's a massive discrepancy between the lowest fee KiwiSaver operators and the highest fee KiwiSaver operators,” says Brownsey.
“So the obvious question to ask is, does it make sense for investors to pay higher fees to anyone?
“The answer is quite nuanced, but what people need to do is look at not just the headline fee, but also at the returns after fees are taken out.”
Brownsey says with almost guaranteed 6% funds growth each year from contributions alone, and the fact members tend to stick with their provider, KiwiSaver has become a dream for fund managers.
Pressure to reduce fees has previously been driven by the FMA, he says, but the regulator seems to have pulled back.
“There should be more pressure on fees, especially for those KiwiSaver providers who have scale.
“They don't have to add people to their team, because they've already got critical mass. I mean, it's just a layup, really.”
Paul Brownsey says some KiwiSaver providers do a better job than others of justifying their fees, but it is something every provider needs to consider. Prescribed disclosure requirements around fees means providers are all offering the same or similar explanations.
“Just because it's there doesn't mean it's easy for people to understand or get their heads around.
“It would be great to see research on the returns for the different KiwiSaver managers after fees,” says Paul Brownsey.
Search
