Government's KiwiSaver comparison tool under fire from financial adviser

A financial adviser has hit out at the Government's money education site Sorted over its KiwiSaver tool claiming the way it presents the information to the public is "potentially" misleading and may lead to poor decisions.

But Sorted's managing editor Tom Hartmann says it has made certain choices in how it presents information on KiwiSaver based on the fact it is trying to communicate with the general public in a language they will understand.

Tauranga-based adviser Brent Sheather said it was industry standard to use KiwiSaver fund performance data that was after fees but before tax but the Sorted site compared after tax data.

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"This means that one has to make some rather complex assumptions on tax to adjust standard benchmark data to an after tax basis."

Sheather said the website also did not provide benchmarks to compare the fund performance to - a standard that professional investors like the New Zealand Superannuation Fund used.

"Most retail investors, even if they knew what they needed, would give up."

Sheather was also critical of Sorted's focus on performance data rather than fees.

"By prominently displaying five-year performance and enabling users to rank funds by performance the Sorted website encourages performance-chasing by investors.

"The Sorted website only provides short-term performance data despite a number of
KiwiSaver funds having 10 years of performance history. However, historic performance, even for 10 years, offers little information as to which funds will outperform and the shorter the period the more misleading the information."

Hartmann said the goal of its comparison tools was to provide KiwiSaver investors and those investing more widely with the best and most relevant data available to the public.

"...the Sorted site is not built for expert investors at the NZ Super Fund. It's for a wide audience of actual and potential KiwiSaver members, including secondary students who utilise these tools in our Sorted in Schools programmes. This means they require plain English and to have us refrain from using industry jargon as much as possible."

Hartmann said it used after tax and fees data to give everyday people the closest idea to what they will receive in the hand, after fees and tax.

"Simply repeating institutional practices can be unhelpful and incomplete to wider audiences."

He said the concept of comparing to a benchmark would need to be taught before it could even be used by the general public.

"We offer averages of a fund's peers, such as an average of balanced fund performance to compare with a specific balanced fund. This serves the same purpose as the industry's use of benchmarks: to help compare the performance and volatility of the fund within its particular market."

Hartmann said while it agreed with Sheather that a focus on performance returns could lead investors to assume it will predict future outcomes that was why it had chosen to make the information less prominent to other data.

"Knowing that users will be looking for performance, we have opted to downplay it."

Hatmann said it had opted to compare five-year performance figures in order to be as inclusive as possible.

"We think five years is long enough to keep a long-term perspective while including as many funds as possible in the comparison tables."

He said many newcomers providers would be excluded for a long period of time if it only used those with more than a 10-year track record.

Hartmann said Sheather appeared to be targeting Sorted as a proxy for his criticism of the KiwiSaver industry but it could only work with the data it had which was provided through statutory disclosures by the providers

"As to holding us 'partly responsible' for 'painfully high' KiwiSaver fees, we think our tools have done their part to contain them. When the KiwiSaver fund finder was first published ... there was a provider whose fees resulted north of 3 per cent, able to be seen for the first time. By only months after our release, it had exited the industry. Sunlight is a great disinfectant."