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I have been hearing a lot for a long while about the fees that we pay to our KiwiSaver providers (this is the New Zealand compulsory savings scheme) and that over the lifetime of the fund we are paying well above the odds for the service we get. Apparently we should be outraged. I have finally removed my head from the sand and took a closer look this week.
I thought I would start with the smallest fund - my nine year old daughters - and do some comparisons. Should be pretty straight forward. WRONG! Researching for this blog I flip flopped between staying in the fund she is in as switching did not seem worth it and the alternative looked more or less the same BUT after the Googling began so did the (in my head) swearing at her current provider when I finally tracked down her fees. Her very well hidden fees. The sneaky *&^&*%$ (rhymes with truckers).
I’m looking at Simplicity as an alternative. As with other KiwiSaver schemes they are regulated by the Financial Markets Authority. It is a not for profit KiwiSaver scheme, it has much much lower fees, 15% of those fees go to charity and they don’t invest in landmine companies or cigarettes. And something else I liked is that there are a lot of women amongst their staff, company directors and trustees. They currently have three funds on offer: conservative, balanced and growth.
I looked into the fund my daughter is currently in:
ANZ Investments OneAnswer Kiwisaver Scheme Growth Fund
Brace yourselves, we invest a whopping $40 per month into her fund for her and have done so since she was born. Plus she was lucky enough to receive a few lump sums early on from whanau which bumped up her balance. Each month ANZ Investments takes back $2 in Membership Fees to run the fund.
That is 5% of what we invest on her behalf.
That is high I thought, but MY balance is much higher in my own fund and I’m only being charged $2 a month in fees too. It is because her balance is low that it hurts.
Here is her fund, what it is made up of and a record of her contributions and Admin Fees. Pretty straight forward and UP FRONT I thought. What are people banging on about high fees for? Read on, don’t stop. It gets more interesting...
But I kept thinking “what am I missing here?”
It took a lot of digging and I ended up Googling: “ANZ Investment KiwiSaver Growth Fund fees”. Lots of scrolling to find this:
Membership fee: $2 month
Annual Fund Charge: An annual fund charge is charged to each fund per year (calculated as a percentage of the net assets of the fund). The annual fund charge is calculated daily and will reduce a fund's unit price. We deduct the annual fund charge from the funds; you won't see this on your ANZ KiwiSaver Scheme account statement. The actual charge may vary each year because expenses vary. Although you'll not pay more than the annual fund charge, expenses can be carried forward and recovered in future years.
The Annual Fund Charge of the Growth fund she is in is 1.13%. It is made up of a management fee, the supervisor's fee, fund expenses, fees and expenses of underlying funds (that is, other funds in which the funds invest).
Ahhhh, now I get it! They charge what appears a reasonable up front fee of $2 month and then sneak the money out the back door and I never actually know how much it was. Awesome business model.
I don’t know about you, but my maths is pretty terrible and although I could work out what 1.13% of something is with a calculator, when its calculated daily well WHO KNOWS what she has paid because as they state above “you won’t see this”.
I’m not outraged but definitely a little ticked off.
So I rang them of course and asked them exactly how much she has been paying for her Annual Fund Charge. They explained it will take them up to 24 hours to give me a document of the year ended 31st March 2016 which will hopefully tell me how much she has paid in fees. An 11 month old statement. Even though she was looking at my daughter’s account she could give me NO information about the Annual Fund charge.
In an era of open source, open info, transparency etc this strikes me as more than a little backward. She did come back to me at the end of the day but apart from the $2 monthly charge she was unable to tell me how much she had been paying in fees per year. We talked in circles about this but got nowhere.
So I rang Simplicity directly and said “What the hey?” What do your fees look like? We had a good chat on the phone and they they emailed me a sample statement and they set out their fees as follows. They charge $2.50 a month and 0.31% of what you invest.
FEES ($2.50 per month + 0.31% per annum) - $69.30
A bit of mental arithmetic is still required. You need to work out how many months (annual charge is $30) you have been in the fund, each month you are charged $2.50, deduct that amount and whatever number is left is the fee you have paid to date. Whilst still slightly difficult you can at least keep track on a monthly basis.
Their total annual admin charge is higher than what my daughter currently pays BUT when I calculate the extra fee it looks roughly like this:
ANZ: 1.13% of $8,270 = $93
Simplicity: 0.31% of $8,270 = $25
Difference: = $67
If you have $50,000 in KiwiSaver:
ANZ: 1.13% of $50,000 = $565
Simplicity: 0.31% of $50,000 = $155
Difference: = $410
This is a ROUGH calculation as they do their interest calculations daily, plus unit prices go up and down so I’ve just based in on today’s total figure. So, I can now SEE more clearly that the more you have invested, the more fees you pay and if you extrapolate that out over 10 - 20 years then thats a big chunk of change you could be handing over in fees.
I’ll not be having that, she will be better off to switch. I want her to retain more of her own money so it can earn more for her over her lifetime. She has time on her side and by cutting her fees now at age nine the difference will be tens of thousands of dollars over her lifetime going into savings.
But what about the fund itself? No point saving on fees and losing all of your money through poor investment decisions. Simplicity has only been running a few months but because they use Vanguard which is an Index Tracker Fund to manage their international funds I’m pretty confident that they will perform well. In New Zealand they bought into the Top 50. They say they are trying to be as transparent as possible so time will tell I guess, they seem pretty open in the interactions I’ve had with them. I’ve been all over their website, had a thorough conversation by phone and I’m comfortable enough to make the switch to their growth fund. Although she has changed funds once before on the advice of a financial advisor I’m intending that this is it for the long term.
Switching was simple enough, it took less than ten minutes (I had to upload passport images which took me a little longer). The good bit too is that they do all the leg work and nothing else is required from me. Can you IMAGINE HOW EXCITED my daughter was when I picked her up from school and told her that I’ve potentially saved her $$$ this year. Yep, she rolled her eyes. And YES, the rest of the whanau is going to be switching too.