It’s fashionable to cite “Uber” when someone has a grand plan to disrupt a fat, overblown fees-driven industry. “We’ll be the Uber of this or that,” proponents claim as they hawk their new service. Usually these new services are online-only, promise lower fees and that they will be more consumer friendly.
The latest of these claimers is an online KiwiSaver scheme, promising low fees across its three funds — conservative, balanced and growth.
Simplicity is the brainchild of Sam Stubbs, former chief executive of Tower Investments, who obviously made the most of his gardening leave when the company and he parted ways. The not-for-profit charges a fee of 0.3 percent and a $30 annual administration fee. In comparison, the average fee on a conservative fund for the year to March was 1.15 percent.
From a consumer perspective, the KiwiSaver industry is overdue an “Ubering”. More than 2.6 million people are in KiwiSaver, with more than $32 billion invested in funds. But many people have no idea how their money is invested (as we recently saw with the revelation some funds have been invested with cluster bomb manufacturers) or how much goes in fees.
Boutique funds like Milford Asset Management, which charges higher fees but also promises higher returns, are not the target market for the likes of Simplicity. It’s looking at the large lump of people who are in KiwiSaver, managed probably by a bank, and have little idea of the fees they are paying.
Research show fees have steadily increased and the range of fees charged on the four main KiwiSaver types is huge. A large part of most providers’ fees is based on a percentage — the bigger your balance, the more you pay.
Stubbs says banks have developed large economies of scale as balances have grown, but fees have not shifted. He recently said: “Compared to similar schemes in other developed countries, these fees are very high. Profits for KiwiSaver managers are at $150 million now. Without change, we think they will be at $1.3 billion by 2030.” He’s promising Kiwis will be $65,000 better off putting their retirement savings with Simplicity.
If you’re a passive KiwiSaver, recent publicity has brought home the message it’s time to start looking at your options, what fees you pay and where your money’s invested.
About the author:
Sue Chetwin has been our Chief Executive since April 2007 after more than 25 years in print journalism. She was formerly the Editor of Sunday News, Sunday Star Times and the Herald on Sunday.
Sue oversees all of Consumer’s operations and is also the public face of the organisation. Sue is a director of the Banking Ombudsman Scheme and a member of the Electricity Authority Retail Advisory group.