Do you read your KiwiSaver statements? Really? In the next few weeks the first truly readable personalised KiwiSaver statements will be produced.
Thanks to law changes this year, KiwiSaver providers must publish standardised data about their funds each quarter as well as personalised annual statements in June each year.
No longer will fund managers be able to massage returns to make poorly performing KiwiSaver funds appear stellar.
From now on everyone's statement will appear in the same format and there will be graphs and pie charts for visual consumption.
The new statements will have to meet a precise template that is spelled out in black and white in the legislation.
Hiding less than good results or highlighting meaningless data won't be as easy as it has been.
The really good news for consumers is that KiwiSaver providers have to provide their data to the Financial Markets Authority and all the like-for-like data will be available for individuals to peruse.
Sorted.org.nz is preparing to slice and dice the data through an interactive tool.
Sorted's Tom Hartmann said this week that the new KiwiSaver comparison tool would be launched on November 11. It will enable consumers to make their own meaningful comparisons between KiwiSaver funds.
Until now New Zealand has been one of very few OECD countries that didn't require superannuation/pension providers to publish comparable data on returns, fees, and asset allocation.
In a submission to the Ministry of Economic Development, financial commentator Louis Boulanger, who was involved in developing global reporting standards, said standardisation was necessary, because "most unfortunately, the industry has not been willing to follow best global practice or regulate itself sufficiently for quite some time".
Thus far the level of detail and methods used by KiwiSaver providers to report their returns, fees and other information varied significantly. One provider might, for example, show its returns before tax and/or fees were taken out and another post-tax/fees. The latter's performance may have unfairly looked worse than its competitor. Leaving out tax and fees has the effect of making returns appear higher than the saver actually receives.
Yet tax is a reality that can't be avoided and investors shouldn't be doing their projections without factoring it in. Otherwise they could find themselves tens of thousands of dollars poorer in retirement than they expected.
In the new statements fees will be broken down and shown as a percentage of the money invested.
Standardised reporting should also boost competition between providers. As the Ministry of Economic Development (now the Ministry of Business Innovation & Employment) said when it sought submissions on the proposal: "Competition drives both better investment performance and innovation in new product development, as well as lowering fees."
The new reporting system will also allow proper league tables to be created and improved analysis of fund performance by organisations such as Canstar, Morningstar and FundSource.
These organisations currently offer either ratings or fund searches that enable KiwiSavers to make comparisons and rank funds according to performance and other factors such as customer service.
KiwiSaver providers aren't always keen for such data to be in the public domain. They have argued in the past that the average member of the public doesn't have sufficient knowledge to make comparisons and/or shouldn't make comparisons based on factors such as fees and past performance.
It's true it's not a good idea to pick a fund solely on past performance. "If, however, returns have been consistently low it may be a reflection of poor fund management," says Sorted's Hartmann.
Under the new rules any cost deducted from the assets of the KiwiSaver fund or any charge levied on the investor must be disclosed. Fees can cost thousands of dollars over the lifetime of a KiwiSaver fund.
KiwiSaver funds shouldn't be chosen on fees alone. Sometimes high-fee funds do just as well or better than low-fee ones. Depending on which side of the fence you sit fees are either unimportant or supremely important. Those that charge high fees say that in return you get better investment prowess. Nonetheless, the consumer deserves to know what those fees are.
Until now KiwiSaver funds have had very different ways of describing and calculating fees. They were often as clear as mud - especially when the fund invested savers' money in other investment funds. This generated extra layers of fees that were brushed under the carpet. A KiwiSaver manager could advertise 1 per cent fees, but not disclose the hidden fees.
That includes performance fees, which some managers charge. Performance fees are an extra fee if the fund goes up more than a predetermined amount or percentage in a year. Not all managers that have been charging a performance fee over and above standard fees have disclosed that.
Even where investors were aware of the performance fee, they didn't necessarily know the details, such as the benchmark the manager must beat before the fee kicks in.
Whatever the fees, there has been little incentive for fund managers to minimise costs that weren't quantified to investors.
Other factors that need to be considered when choosing a KiwiSaver fund, Commerce Minister Craig Foss said in a statement, include how long each individual has before retirement, their financial commitments and personal savings goals.
The Sorted.org.nz tool will enable consumers to narrow down a list of funds according to the individual's personal risk profile and then sort those funds on fees, customer service, or returns. Consumers can also enter their existing fund and compare it with like investments.
Another useful feature will be a watchlist of funds. Even if consumers aren't ready to switch on their first visit, they can save funds that appeal to them and watch their performance over time.
There will be an option to register an email address to be alerted when new quarterly data is updated.
The new system also does away with a lot of the gobbledegook. The MED pointed out that funds had been using different names for the same thing. What one provider might call an "investment management fee" could also be described by others as a "fund management fee", the "recurring management fee" or the "ongoing management charge".
The new rules have standardised the language that must be used. For example, the standard template that providers must use for quarterly and annual disclosures to members breaks fees down into four areas with specific names:
Annual management fee
Other fees and costs
Until now KiwiSaver funds haven't always disclosed the asset classes used in their funds, which means consumers can't compare apples with apples.
Smaller boutique KiwiSaver funds in particular argue that they differentiate themselves on their investing prowess and disclosing the investments gives the opposition the chance to copy them. They must now publish details of their top 10 investments.
Investors need to know the mix of assets to ensure their retirement funds aren't invested too narrowly or duplicating other investments they have. This can skew diversification.
There will inevitably be some teething difficulties in the system's early days, says Morningstar co-head of fund research Chris Douglas.
"I am incredibly enthusiastic about the changes, but there are different ways of calculating data points [such as] performance and fees."
He expects the Financial Markets Authority will deal with any obvious inconsistencies if they arise.
I have my fingers crossed that the new personalised statements will encourage more people to take ownership of their KiwiSaver investments.
Use overseas of standard reporting has helped to improve financial literacy and interest among investors.
Yet there are still a lot of Kiwis who were enrolled into default funds and don't even know who their provider is let alone any of the other details mentioned here.
I have some sympathy for them. My KiwiSaver provider has changed name twice and every year there seems to be a new version of the website to log into and navigate around.