The Financial Markets Authority (FMA) has highlighted its right to issue ‘stop orders’ to KiwiSaver schemes that breach fee standards in a new consultation document released this morning.
In a follow-up to its ‘value for money’ report published earlier this year, the regulator says stop orders could, for example, “prevent schemes with unreasonable fees from advertising, and prevent transfers of new members”.
Among wide-sweeping proposed ‘guidance’, the FMA proposals lay out several scenarios where KiwiSaver providers should review fees, or face regulatory questions, including when:
- funds under management increase – fees should reduce to reflect reduction in fixed costs due to economies of scale;
- moving from active to passive investment management;
- fund input costs have fallen due to a decrease in third-party fund manager fees; and,
- scheme amalgamations where economies of scale are an end result
The proposed fee guidelines also stipulate that any KiwiSaver advice fees “should be separately disclosed and charged to the member benefiting from that advice”.
“It should not be incurred by the scheme and consequently all members of that scheme,” the FMA proposal says. “If members are charged a trail commission, it implies there is an active review process by the financial adviser, involving the client. If advice is only provided when the initial sale is made but the fee continues to be charged, the fee is likely to be unreasonable. Any ongoing advice fees charged to individual members should be reasonable and reflect the level of service provided to that member over time.”
Furthermore, the FMA says the KiwiSaver fee guidelines could also serve as an indicator for other investment funds.
“On this basis, all managers and supervisors should regularly review their scheme fees to assess whether they provide value for money to members,” the document says.
Following the release of the regulator’s ‘value for money’ report by MyFiduciary, Liam Mason, FMA director regulation, noted KiwiSaver fees were higher than expected and not apparently related to passive or active investment activities.
Submissions on the latest FMA proposals are due by December 14 ahead of a final guidance note to be published early next year.