Thanks to new disclosure rules you can now compare apples with apples when it comes to KiwiSaver funds.
On July 1 2013 new disclosure rules for retail KiwiSaver schemes came into force. The KiwiSaver (Periodic Disclosure) Regulations 2013 require all 33 retail KiwiSaver schemes to regularly report on fund performance, fees, asset allocation and other matters in a simple and standardised form.
The government considers disclosure of such information as being important for competitive markets because it “increases transparency, enabling investors to compare different funds and make more informed and efficient investment decisions”.
We completely agree – it’s about time.
Prior to the new rules there were no specific reporting requirements on KiwiSaver schemes to disclose information about the performance of their funds. As a KiwiSaver investor it was extremely difficult to get an idea of how your fund was performing or how its fees compared to other funds.
Individual KiwiSaver providers were left to their own devices to disclose information, with no consistency across the market as to what was made public and how returns were displayed. Funds were using different names for the same thing. Some showed returns before tax and/or fees were taken out and others post-tax/fees. This had the effect of making the pre-tax/fees results appear better than what the investor was actually receiving. In June 2008 when Consumer looked at KiwiSaver fees we found most schemes had confusing and imprecise fee information.
Under the new regulations, KiwiSaver providers will publish on their websites quarterly and annual disclosure statements for each of their funds. The new statements have to meet a standard template which includes graphs and pie charts to aid understanding. KiwiSaver providers will also need to publish the information in a standard spreadsheet that can be used for further analysis.
This is good news for KiwiSaver investors (and professional and amateur KiwiSaver analysts) and no doubt it will put fund performance and fees under the microscope. Fund managers may not be happy with this close scrutiny but as the saying goes “sunlight is the best disinfectant”.
What you will now see
- A description of the fund in terms of its total value, number of members and the date it started.
- KiwiSaver scheme membership fees as an annual dollar amount.
- Fund fees broken down into three categories and shown as a percentage of the total money invested:
- Annual management fee.
- Performance-based fee.
- Other fees and costs.
- Annual returns after deductions for fees and tax for each year since the fund started, and the average annual return since the fund started. (The tax level will be the highest prescribed investor rate (PIR) of tax for an individual New Zealand citizen – your tax rate may be lower.)
- The mix of assets that the fund actually invests in shown in a percentage format. Investors need to know the mix so they can see their funds aren’t too narrowly invested or duplicating other investments they might already have. The target investment mix will also be shown.
- The top 10 investments and what percentage of the total fund assets they make up.
- Key personnel – the directors and employees who have the most influence on the investment decisions of the fund.
- Further information such as related party transactions, changes to trade allocation, execution and proxy voting policies, and changes to a fund’s valuation and unit pricing methods.
Investors do need to remember that the performance of KiwiSaver funds should be judged over longer time periods rather than on a quarterly or even annual basis. What did well in the past may do badly in the future and vice versa.
Likewise, funds shouldn’t be judged on fees alone. Some low-fee funds may perform as well as high-fee funds. But as fees can cost thousands over the lifetime of a KiwiSaver fund it is important for investors to have this information.
And investors also need to consider their personal circumstances – for example, how long they have before retirement, their financial commitments, and personal savings goals when deciding on what type of fund is suitable.
Sorted.org.nz has produced an interactive tool that helps consumers compare KiwiSaver funds. You can narrow down a list of funds according to your personal risk profile and then sort those funds on fees, customer service and returns. You can also create a watchlist of funds so you can keep an eye on different funds over time.
We will be making this tool available on our website in 2014.
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