Savings fund tipped to push down fees

SavvyKiwi founder Binu Paul. Photo / Supplied

Independent KiwiSaver analysts say the launch of non-profit provider Simplicity should help to push down fees but it will need to hit a critical mass to ensure it has a sustainable business model.

Simplicity, launched yesterday by former Tower Investment chief Sam Stubbs is an online, passively managed index-based fund.

SavvyKiwi founder Binu Paul said there was no doubt that Simplicity was offering the cheapest fees in the market and that could translate to big savings over time.

Claims that up to $65,000 could be saved over the lifetime of a Kiwisaver, on a compounding basis, were fair points, he said.

But there was no direct comparison in the local market because they were the only provider working on a non-profit, charitable trust model.

"It's innovative but I would be interested to see the sustainability of the business model," Paul said.

Morningstar analyst Katherine Young said Simplicity's claim to be bringing much needed competition to the market was reasonable.

"New Zealand has been relatively unique in that it hasn't had a lot of passive fund competition," Young said.

While fees were important and could make a big difference over time "it was important to stay focused on overall returns", she said.

ANZ, the New Zealand bank with the largest amount of KiwiSaver funds under management, said its "active investment management approach has delivered for members, and our funds have consistently been in the top quartile for performance over most time frames on an after-fees basis.

"Fees will always be an important consideration, but our own research with members tells us that one of the most important factors for them in choosing a KiwiSaver provider is the reputation of the provider," the bank said.

ASB is currently the biggest bank provider of passive KiwiSaver funds.

In a statement yesterday it said it believed Simplicity's launch was positive news for the industry.

Simplicity will use US low-cost fund manager Vanguard and says it will use profits to try to lower fees.