David Chaplin 's Opinion

A personal finance columnist for the NZ Herald

Inside Money:A tale of two (or more) fees

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Photo / Natalie Slade
Photo / Natalie Slade

ASB did a beautiful job this week of announcing fee increases for its KiwiSaver funds.

Jammed full of user-friendly charts showing the dollar-cost of next year's fees and a competitor analysis that - are you surprised? - rated ASB as the cheapest in most categories.

Citing the cause of simplicity, ASB has also bundled its fees into two components: the flat $30 annual admin fee, and; the new investment management fee that includes the old investment management fee plus the trustee fee and other 'recovered costs', which used to be recorded separately.

(However, the fees exclude the costs of buying and selling assets - or brokerage - that will be charged to the fund.

Being index funds, though, the ASB KiwiSaver scheme should not incur excessive brokerage fees.)

But I can't decide whether the new ASB fee reporting method is a good thing or not. It probably will make it easier for KiwiSaver members to understand how much they are paying ASB but it's also going to make the scheme's operational efficiency much less transparent.

Say, for example, as the KiwiSaver fund inevitably grows, ASB may be able to negotiate cheaper trustee fees - and if it doesn't show up in member statements will such cost savings be passed on to members or retained by the bank?

My quibbles aside, ASB has been pretty upfront about its fee hikes and the 'before and after' comparison charts are well done.

Overall, ASB's claim to be cheap-as is fair - but it should be too because its KiwiSaver scheme (not including the FirstChoice funds) invests passively.

So you won't, for instance, see ASB claiming a performance fee in its KiwiSaver disclosure such as that revealed by the Huljich scheme in its latest accounts.

According to the accounts, for the year ended March 31, 2010, Huljich earned investment management fees totalling $663,107. But it almost doubled that figure with its 'performance fee' kicker, which added another $597,409 to the Huljich kitty.

This is how Huljich justifies its performance fee: "The performance fee is equal to 10 per cent of the amount by which the pre-tax return of the relevant KiwiSaver fund exceeds the NZX 90 Day Bank Bill Index plus 2.5 per cent (the benchmark)."

It does have a "high water mark", which means Huljich won't earn a performance fee if its fund value drops below the last time it charged a performance fee (which it assesses every six months).

But an experienced fund manager suggested to me that Huljich performance benchmark was on the low side. It should be remembered, too, that fund managers get rewarded for growth anyway - performance fees based on arbitrary benchmarks will simply confuse most KiwiSaver members and how do they judge the value?

Maybe a nice little chart will help explain.

David Chaplin

A personal finance columnist for the NZ Herald

David is a freelance journalist who has covered the financial services business on both sides of the Tasman for over 15 years. David has edited magazines and websites for the financial advice, investment and superannuation industries. Today, he contributes to various publications in Australia as well as his bi-weekly blog for the NZ Herald under the 'Inside Money' banner.

Read more by David Chaplin

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