KiwiSaver providers are likely to face further pressure on fees following a new Financial Markets Authority (FMA) report due for publication in the next few weeks, including the potential for default schemes to publish profit-and-loss figures.
It is understood that the FMA ‘value for money’ study, carried out by consultancy firm MyFiduciary, concludes KiwiSaver fees have not reduced in line with global trends.
However, according to sources familiar with the material, the MyFiduciary analysis found only minimal evidence of ‘closet-indexing’ behaviour across the KiwiSaver schemes it sampled.
The study, allegedly, uses a composite of investment style statistics to create a novel ‘activeness’ gauge. As well as ‘active share’, the new measure incorporates tracking error, tactical asset allocation, and asset diversity to rank KiwiSaver schemes on an active-passive spectrum.
Most schemes are understood to have emerged as true-to-label on the new active-passive continuum: essentially, the data shows secret benchmark-hugging is not common in KiwiSaver, with perhaps a few exceptions.
For example, prominent active advocates NZ Funds, Generate, Fisher Funds and Milford Asset Management rank highly on the MyFiduciary scale, according to sources, with the main surprise expected to be a couple of multi-manager schemes falling into passive territory based on the ‘activeness’ measure.
The activeness gauge does not include performance, however. Furthermore, the study allegedly failed to find any strong correlation between activeness and fees.
But the report is also expected to argue that KiwiSaver fees in aggregate remain on the high side with a few ideas floated by MyFiduciary to dial down the costs. Default providers, for instance, could be required to publish fund accounts revealing actual profit (or loss) margins, well beyond the current financial reporting requirements.
The regulator engaged MyFiduciary late last year “to perform a detailed study of the application of active and passive management across the portfolios of KiwiSaver providers, fees incurred for this, and an assessment of whether investors are getting good value for money from their provider”.
At the time, Liam Mason, FMA director regulation, said: “This includes explaining investment styles and how higher fees are justified for services such as active fund management or responsible investment strategies.”
A final version of the FMA report should be published in August.
In a statement, the FMA said: “The report is not yet finalised and is currently going through final checks in confidence with industry before publishing. We will comment on the report when we publish the final version.”