The 10 largest NZ fund managers will collectively contribute almost $3 million this fiscal year in base levies to the Financial Markets Authority (FMA) coffers if current asset levels hold.
According to new industry fee levy rates released last week, the annual FMA impost for larger fund managers increased about 5 per cent on previous levels. The highest annual fee of $460,000 plus GST (up $23,000 on last year) applies to managers with at least $10 billion of assets – an elite club of just four in NZ, comprising ANZ, ASB, Westpac and AMP.
However, the new levy schedule holds fees flat or lower for smaller managers (under $1 billion).
The FMA levy changes are part of an overall jump in funding announced in last week’s budget that will see the boost the regulator’s bottom line by almost $55 million over the next three financial years. Government allocated $48.5 million to the FMA for the current financial year, rising to $60.8 million by the 2022/23 period with industry fees and levies to fund 75 per cent of the costs.
Supporting documents released by the Ministry of Business, Innovation and Employment (MBIE) forecast total fund manager levies to reach over $8.6 million at the end of the phased increase period compared to the $5.3 million collected last financial year. The top-tier annual FMA levy could eventually rise to about $580,000 (ex GST) under the MBIE model.
But the fund manager FMA contribution as a proportion of the levy pool will fall slightly from the current 21 per cent to under 19.5 per cent, the MBIE forecast shows.
The funds management sector will also drop from the top spot to the second-most important source of industry FMA levies once the phased transition is complete. Instead, general Companies Office registration revenue (of which FMA receives a portion) will increase from almost 17.4 per cent (or $4.4 million) to more than a quarter ($11 million plus) of the levy pool over time, according to MBIE figures.
MBIE has further allowed for higher discretionary investment management service (DIMS) levies across the board with top-tier annual fee – covering assets under management above $2 billion – eventually rising to about $75,000.
Overall, the new levy arrangements shift the burden more on to large-scale enterprises.
MBIE also forecasts longer-term annual levy revenue from the about-to-be-reformed financial advisory industry to reach about $5 million. The government figures show yearly revenue from financial advice providers would hit about $2 million (of which $1.3 million relates to ‘nominated representative’ fees: meanwhile, registered providers “that are financial advisers” could ultimately tip in $3 million each year in levies.
In the current financial year the FMA expects “approximately $1.2m of licensing fee revenue as part of the licensing of financial advice providers”.
Aside from the FMA boost (and, of course, massive dose of fiscal stimulus) injected via the budget, Finance Minister Grant Robertson offered little of note to the financial services industry, keeping most items in steady-state mode. As previously signaled, NZ Superannuation Fund contributions will increase $660 million in the 2020/21 fiscal year to total $2.1 billion.
“The annual contributions increase by a further $300 million in 2021/22 and $40 million in 2022/23,” budget papers reveal.
In a side-note, NZS also tweaked its investment return estimate model, removing the link with a fixed annual return above the 10-year government bond rate. Under the revised forecasting model, NZS will make return 40-year estimates based on: the “risk-free rate”, defined as “equilibrium” returns on 90-day Treasury bills; excess return after costs; and, the reward for “value-adding activities”.
“The effect of this change is to reduce the capital contributions, required by the legislated contribution rate formula, and increase withdrawals once they begin, while the projected NZSF size actually increases,” the budget paper says.
NZS (now valued at about $42 billion) has forecast a loss of more than -10 per cent in the current financial year before returning to positive territory – in the 7 to 8 per cent annual return range – over the following four years.
The budget also shifts the entity formerly known as the NZ Venture Capital Fund (VCF) from Vote Business to Vote Finance, reflecting its new mandate and structure. Now branded as the ‘Elevate Fund’, the VCF has morphed into a $300 million fund-of-funds vehicle, seeded with $240 million formerly destined for the NZS (which assumes governance duties for the operation). The NZ Venture Investment Fund (renamed as NZ Growth Capital Partners) will tip in the remaining $60 million for Elevate while also running the smaller start-up funder that has also been rebranded as the ‘Aspire Seed Fund’.
Elsewhere, the budget suggests no big changes lie in store for KiwiSaver incentives with the annual ‘member tax credit’ allocation set at $930 million (up about $25 million year-on-year).
“Further increases over time in KiwiSaver tax credits are due to increases in the number of KiwiSaver contributing members and the average value of KiwiSaver contributions,” the budget paper says.
But with rising unemployment and an expected increase in KiwiSaver contribution holidays the member tax credit bill could fall this year.