FMA allows KiwiSaver managers to use one of two methods to show fees charged
By Sophie Boot
July 19 (BusinessDesk) - The Financial Markets Authority has confirmed it will allow KiwiSaver fund managers to use two different methods to show how much they are charging people to manage their funds, with both able to provide investors with the information they need.
As part of new regulations requiring KiwiSaver managers to disclose fees in dollar values for investors, the FMA will allow them to use the investor's balance at the date the units of the fund are valued, known as the cents per unit (CPU) method, or another method based on the investor's average balance or the total annual fund charge (TAFC) method.
The FMA initially proposed all managers use the TAFC method, but after some managers said they wanted to use the more accurate but also more complicated CPU method, the regulator adopted that as its preferred methodology. This is up for review within five years, with the methodology notice due to be revoked in July 2022.
"KiwiSaver scheme providers will not need to comply with the methodology notice when producing their 2018 annual statements," the FMA said. "However in practice, we expect providers will still comply with the methodology, to avoid the cost of changing systems when producing their 2019 annual statements."
The FMA wants KiwiSaver investors to be able to clearly understand how much they are paying to managers each year. Providers aren't compelled to disclose total fees as a percentage as well as in dollar terms, but the regulator has strongly encouraged this to allow investors to compare their fees over time.
The regulator said the two methods will produce similar results if no large infrequent withdrawals or voluntary contributions are made by an investor, or if the fund charges are relatively constant.
Some managers said it would be too expensive to implement the CPU methodology, and the FMA expected they would ask for extensions on implementation if they only allowed the CPU method, meaning investors would not get personalised fee disclosure for at least another year.