Sometimes when the regulator speaks, it is as if a parent is telling their children to tidy up their rooms for the umpteenth time.
Saturday, October 2, 2021, 9:19 a.m.
by Philippe Macalister
By accompanying the AMF’s annual review of KiwiSaver programs, we received the usual message about fees and “value for money”.
Here is what he said: “Our directive says that managers are expected to review their fees annually with their supervisors and take concrete action if they find their fees unreasonable and not good value for money – by increasing their services, reducing costs, or both.
“Managers were told they had to prove that such reviews were taking place, and our message that failure to do so could trigger a regulatory response received extensive media coverage.
It’s hard not to disagree with the FMA when they say “there is little justification for membership fees being charged by investment managers who have reached scale.”
Coincidentally, within 48 hours, ANZ announced that it was waiving its annual fees. How banks, and other big KiwiSaver providers like this one, can justify these fees for over a decade is another unfathomable thing that makes the bank greedy.
A little math on the back of the envelope (nowadays done on the calculator on his phone) would suggest that charging 650,000 members $ 18 each per year would net $ 11.7 million.
As a member of one of their plans, I benefit from active management, but not much else.
The other criticism of the FMA is the value for money. This one is a bit of a conundrum.
Here is his latest sermon on the subject: “Our directive says that managers should review their fees annually with their supervisors and take concrete action if they find their fees unreasonable and not representing good value for money – including increasing their services, lowering fees, or both. “
“Managers were told they had to prove that such reviews were taking place, and our message that failure to do so could trigger a regulatory response received extensive media coverage. “
How do I quantify the value for money of a reasonably invisible service where the provider earns more every time my KiwiSaver balance increases?
It would be interesting to be a fly on the wall when a manager sits down with his supervisor (formerly a trust company) to determine value for money.
Value for money seems to be what we think is a fair price for something.
In the real world, consumers decide if they are getting their money’s worth and vote with their feet. KiwiSaver is great because there are so many options. It’s not like flying inside the country where, if you’re like me and live in Rotorua, you have no choice and just have to swallow the fares on offer.
Supermarkets also grabbed the headlines. But there is a choice. If you want the cheapest with the least amount of service, go to Pak n Save. At the other end of the scale is the New World.
Am I getting good value for money from my KiwiSaver supplier?
I’m not really sure, and you’d think I would know. I went to get my annual statement (that’s about all I get) and looked at the fees and they weren’t huge.
Each of us has a different idea of value for money. How a regime with hundreds of thousands of members can make this judgment for each member is asking the impossible.
The FMA’s next complaint was about the fees charged for counseling.
Here is what he said; “The investment manager must demonstrate that the advice is received, not just ‘offered’, that it is continuous, not just at the time of onboarding; that the fees charged are reasonable; and that the fees, and to whom they are paid, are disclosed to members. “
“When fees are charged for services other than advice (e.g. a robust investment process), the manager must demonstrate how the service adds value to the member’s account – adding return, reducing risk or, ideally, both. “
Looks like we need a new compliance branch; The KiwiSaver advice police.
What the FMA is saying is completely reasonable, but it’s so woolly, and a bit heavy in its message cap, that it becomes a bit counterproductive.
If there is a problem, fix it – it seems to be the way of the world right now.
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