KiwiSaver Fee Analysis - How We Compare to Australia

Chris Douglas  |  13 Feb 2012  |    |  Increase  |   Decrease

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We pay a great deal of attention to fees at Morningstar, for a very simple reason: they are the one constant in future performance results that fund managers can control. Higher fees erode performance outcomes, which is why we spend considerable time and effort attempting to understand fee structures, and making judgements as to whether or not we consider they are appropriate.

We recently qualitatively reviewed the multi-sector funds for the six default providers plus Fisher Funds and Westpac. In this sector review, we have attempted to put a number on the total cost per fund we have assessed. The issue of fees is a murky one: there are a number of ways to calculate the overall cost of making a KiwiSaver investment. In this exercise, we have followed the global standard proposed by the International Organisation of Securities Commissions (IOSCO). In line with this standard, the calculated Total Expense Ratio (TER) does not incorporate any dollar-based account fees.

The formula for the calculation of the TER is calculated at the end of each financial year:
Total Expense Ratio = (total expense per fund /Average 12-month fund net asset Value)*100

Table 1 below shows the average TERs in the Morningstar multi-sector fund categories over the 2010/11 financial year for the KiwiSaver providers we assessed, as well as the maximum and minimum fees charged in each category. The data in the table confirms the widespread assumption that the more risk-seeking the category - in other words, the greater the allocation to higher-risk assets such as shares and property - the greater the fee premium the investor will pay. (Actively-managed funds also have higher fees than their passive counterparts.) This fee data also indicates that the majority of KiwiSaver providers' fees are competitive relative to other New Zealand managed funds. In fact, the ASB KiwiSaver scheme is the first truly low-cost passive solution available to the general investing public. The full spectrum
of 2010/11 TERs is available to Morningstar research clients.


Table 1: Average KiwiSaver Total Expense Ratios for 2010/11 Financial Year

Category 2010/11 Average Total Expense Ratio % Maximum % Minimum %
Multi-Sector Conservative* 0.80 1.50 0.36
Multi-Sector Moderate 0.89 1.15 0.45
Multi-Sector Balanced 0.93 1.19 0.44
Multi-Sector Growth 1.02 1.28 0.44
Multi-Sector Aggressive 1.31 2.43 0.90

Source: KiwiSaver Providers. *Includes Default options