Public Trust will likely have to add resources as regulated fund value-for-money duties ramp up in coming years.
Andrew Hughes, Public Trust corporate trustee services general manager, said the broad value-for-money obligations outlined by the Financial Markets Authority (FMA) last year will impose considerable extra work on supervisors and licensed providers.
Hughes said the government-owned trustee business is already preparing for the FMA guidelines to come into play over the next 12 months – and annually thereafter.
The regulator published the final value-for-money guidelines last April in a move that will require regulated managers to justify fees every year according to various factors such as scale or services (providing advice, for example). Initially aimed at KiwiSaver providers, the FMA extended the guidelines to apply across the regulated fund market.
“We have discussed the significance of the FMA guidelines on fees with all of our supervised clients to ensure that they, and their Boards, are on top of it. A number of our clients have already undertaken internal reviews resulting in fee decreases or enhanced value propositions,” Hughes said. “Specifically, we have undertaken a detailed pilot study in parallel with the FMA on four of our supervised managers. The results of those reviews have been shared with the relevant clients and they are currently considering the recommendations.”
He said supervisors are grappling with some questions including the definition of ‘scale’ in funds management (answer, it varies) – and how to unbundle advice fees.
The FMA is expected to report back on the value-for-money pilot program shortly.
But in what has been a super busy period for supervisors, Public Trust was also involved with the recent KiwiSaver default scheme transition last year.
“To date, the transition seems to have gone very smoothly overall. The predicted market disruption did not occur,” Hughes said. “The number of members transferred was less than expected because members chose to make active choices prior to the transition. Of those members who were transferred, contact details were of a higher quality than expected and member engagement has been better than anticipated.”
Currently, Public Trust supervises 12 KiwiSaver schemes including four of the six newly approved default providers – Booster, Kiwi Wealth, Simplicity and SuperLife – and one departed default, ASB.
Last year a Public Trust client, Aon, was sold to Fisher Funds, which is in the middle of rearranging the underlying options for the group’s KiwiSaver and employer super master trust members.
And while supervisors have been bracing for renewed KiwiSaver fund switching activity as market volatility spikes once more, Hughes said investors have so far been remarkably restrained.
“We saw considerable switching activity in March 2020, primarily around members moving down the risk spectrum. Since then we have not seen the same kind of activity reoccur,” he said. “Overall we are probably seeing more members move up the risk spectrum seeking higher returns. Members seem to have taken the most recent volatility in their stride. The best practices to limit members making poor choices is good quality advice. This advice needs to come from managers, from the FMA and from other industry experts and respected voices.”
He said other supervisory issues on the Public Trust plate include environmental, social and governance (ESG) investments, cyber-risks and the short-term uncertainty of how to treat fund exposure to Russian securities.
“We like to stay at the cutting edge [of industry trends],” he said. “For example, we are doing some work with crypto funds – you can love it or hate it, but you can’t ignore it.”
Public Trust is supervisor of the Vault International Bitcoin Fund, which reported about $5.8 million under management at the end of 2021, three months post launch.
The business has more than $100 billion in assets under supervision in a market split fairly evenly between the big three providers – Public Trust, Guardian Trust and Trustees Executors.
Late last year, the Hong Kong-headquartered outfit, Tricor completed its purchase of Guardian Trust, marking the first major ownership change among the licensed supervisor cohort in a decade or so.
The almost 150-year-old Public Trust is governed by a stand-alone piece of legislation.