The Financial Markets Authority is broadening its focus to consider whether KiwiSaver investors are getting value for money but it still believes the cost of managing that money should be cheaper.
In its annual KiwiSaver report, the market watchdog reiterated concerns that management fees hadn't come down in dollar terms, despite the increased competition and greater scale among some providers. The FMA hired Melville Jessup Weaver to conduct an international comparison on fees, which found that KiwiSaver fees appeared higher than their UK counterparts and warranted further investigation.
As a result, the FMA wants providers to demonstrate how they're providing value for money for their members, including explaining their investment style and why higher fees are justified, such as for active fund management or responsible investing.
Liam Mason, director of regulation, said if a provider can't explain what fees are for and why they may be high, customers should be prepared to walk away from them.
"When we have talked to providers about fees they often comment that the services they provide - ie the investment management and other services - are what should be important for KiwiSaver members," he said in a statement.
"On that basis, we want to understand better the factors that contribute to 'value for money', and that means looking at services and investment management styles."
Industry lobby, the Financial Services Council, acknowledged the clear message on the regulator's desire for fees to come down. Chief executive Richard Klipin said there has already been a lot of work in the sector to reduce fees.
"With the growth of the KiwiSaver market there is now real competition for consumers to choose from to ensure that they are getting value for money and that they are paying fees which reflect their needs," he said.
Westpac appeared to take the hint, saying it would cut its fixed administration fee of $2.25 a month to $1 and trim its management fee by 10 basis points across all fund types, albeit from the start of December. That will see its management fees range from 0.44 percent of funds under management for a default fund investor to 0.83 percent for a member in a growth fund.
The bank was the third-biggest KiwiSaver provider with $6.6 billion under management as at June 30, or about 11.5 of the market, according to Morningstar research. It was named first-equal in Consumer NZ's KiwiSaver customer satisfaction survey earlier this year.
“Westpac is committed to helping its customers grow financially, and we continually review our products to ensure they provide good value,” Westpac NZ experience hub acting general manager Karen Silk said in a statement.
“As our KiwiSaver scheme continues to grow, we’ve achieved efficiencies that allow us to pass on fee reductions to our members, giving them even better value for money."
The FMA's KiwiSaver tracker tool showed Westpac's KiwiSaver funds have paid an average 10-14 percent of returns in fees over the past five years.
Mason said the FMA has set up a work programme to assess the level of fees against the type of service being offered, such as testing the levels of active and passive management styles among KiwiSaver funds. The work is expected to take a few months to complete, and would include the clarity of providers' disclosure on different investment styles.
The report showed total assets under management grew to $57 billion as at March 31 from $48.6 billion a year earlier.
Of that, member contributions rose $200 million to $3.6 billion, employers' contributions were up $100 million at $2.1 billion and investment returns were up by $600 million at $3.8 billion. The government's contribution was $778 million compared to $754 million. Investment management fees were $388 million compared to $331 million, while administration fees were $91.8 million compared to $87.5 million and trustee fees totalled $6.5 million, up from $6.3 million.
The number of KiwiSaver members rose to 2.9 million from 2.8 million.
Those funds paid $302 million in tax, compared to $251 million a year earlier.
The FMA said default fund providers had stepped up their efforts to encourage members to make an active choice about whether to stay in that investment or switch to a different type of fund.
Those default provider contracts are up for review before their June 2021 expiry, with the government considering whether to change the mandate of the default funds.