An obsessive-compulsive focus on fees could be detrimental to the long-term health of KiwiSaver members, according to Australian research house, SuperRatings.
In its second annual report on the KiwiSaver market, SuperRatings says while fees were important in rating provider competitiveness, the nominal fund costs should be put in a wider perspective.
The report says SuperRatings preferred measure was ‘net benefit to member’, defined as the “investment return achieved by each Scheme, net of any fees and taxes”.
SuperRatings bases its net benefit to member metric on 10-year fee data and seven-year performance figures, assuming a member account balance of $50,000 and annual salary of the same amount.
Adam Gee, SuperRatings chief, said its analysis of the Australian superannuation market had found an inverse relationship between net member benefit and low investment fees.
Likewise, the September quarter Aon Hewitt NZ KiwiSaver survey – released in November – reported “some of the best performing funds have high fees” while a number of low-fee options languished at the bottom of performance rankings.
Gee said while an overall decline in KiwiSaver fees over 2015 was a “good thing for members”, as providers and regulators push for schemes to provide more services – such as education – further fee reductions “may not be sustainable”.
“We remain concerned with the sole focus on fees across the industry and do not want to see a race to the bottom on fees at the expense of competitive investment returns,” Gee said in a statement. “SuperRatings remains a firm believer that active investment management can add value and that any decision to use passive or index investment structures should only be made on the basis of value, rather than purely on fees.”
SuperRatings, which analyses KiwiSaver providers across a range of factors – including investment process, admin and member services – awarded seven schemes the highest ‘platinum’ ranking in its precious metal-denominated system.
The latest platinum club – comprising AMP, all three ANZ schemes, Kiwi Wealth, Mercer and Westpac – was identical to SuperRatings inaugural list excepting the absence of the now-defunct Mercer Super Trust KiwiSaver.
However, the second-tier ‘gold’ list saw a few changes year-on-year with the two Fisher Funds schemes and Generate making first-time appearances while Medical Assurance and NZ Funds dropped down a level.
Aside from the 14 schemes ranked either platinum or gold, SuperRatings rated 13 other KiwiSaver funds as ‘silver’ or ‘other’. The full list will be available here this week.
Overall, Gee said KiwiSaver rates well compared to other retirement savings regimes with “strong levels of member engagement and investment choice evident, underpinned by very cost effective operating models”.
But KiwiSaver providers could improve the member experience with greater use of online ‘robo advice’ tools, he said.
“Given the broad range of offerings on the market, we believe engagement and advice tools are key to ensuring members can make an educated decision regarding which KiwiSaver provider and chosen investment option is most suitable for their needs,” Gee said in the statement.
Part of the Lonsec group, SuperRatings is a long-established superannuation researcher in Australia.