Diana Clement: A blind date with KiwiSaver provider

Kiwisaver's second anniversary is nearly upon us and chances are that some investors are starting to pay more attention as their retirement pots grow.

The latest statistics available show that there are 1,132,081 members - just over the magical 1 million mark. Between them they had $3.8 billion in their funds, which on average works out to $3392 per person.

Most investors are on a "first date" with their KiwiSaver providers or even a "blind date" if they simply accepted a default provider, says Brook Asset Management managing director Mark Brighouse.

It may be time for investors to start taking stock and see if the fund and provider decisions they made at the beginning are in fact right for them.

The first question when it comes to switching is whether you should switch between different funds with your existing provider, or switch providers. If the problem is that the fund you have chosen is too conservative then you may be able to switch funds with your provider and go for balanced, growth or aggressive funds. Few providers charge for switching between their funds.

If your fund is not growing at a similar rate to comparable funds from other providers, or is more volatile than others, or the provider doesn't offer the features you need such as lump sum payment, then you may wish to change provider.

There's a very important point to be made here. The vast majority of KiwiSavers were automatically enrolled with a default provider and if that default provider wasn't told otherwise, the individual's money was invested in a conservative default fund. That means an awful lot of people are in funds that are too conservative for them and for their individual time frame - especially for Generation X and Y investors.

And far too many younger people aren't taking enough risk, says Tower chief executive Sam Stubbs.

"They are being sold something as low risk and they interpret that as good," says Stubbs. "If you don't need the money for decades you should be taking on more risk."

He adds: "Volatility is your friend if you are investing for the long term." And the power of compounding returns over time shouldn't be underestimated.

If you do want to switch providers it's worth taking advice, or at least comparing the offers using websites such as ConsumerSaver.org.nz, Sorted.org.nz, Fundsource.co.nz and Asfonz.org.nz. Unfortunately no one site gives all the answers you need.

The ConsumerSaver.org.nz website comparison is useful for sizing up products and shows the total fees if you're in employment, but it doesn't really work for children who have no income or for the self-employed and business owners. Nor does it provide information on these funds' returns.

Comparing funds' performances isn't easy. The best place to go is the Fundsource.co.nz website, click on the "Find A Managed Fund" search and choose the various KiwiSaver sectors. The results are a bit limited because they only cover the top 25 funds and only show one year's returns.

The next year to the end of October will be available in mid-November. Even so, two years' data is probably not enough to make a decision on.

Eventually, says Yvonne Davy, head of FundSource, the search will be expanded to include comprehensive information such as fees and features.

You can, as Brighouse points out, compare the performance of other products that the provider is responsible for to give you a better understanding of the investment team and its performance record.

The way the funds are sorted on the FundSource search doesn't follow the Conservative, Balanced, Growth, and Aggressive approach of KiwiSaver, which can make comparisons difficult.

Instead there are 11 categories such as Diversified Balanced, NZ Property Pies and International Equity. The results do show the fund size and the FundSource fund rating. Fundsource also publishes a selection of this data each Saturday in the Herald (See table below).

The problem with keeping constant tabs on fund returns is that people chase last year's winners, which may not be this year's winner.

It would be easy to look at the high growth and aggressive funds' returns in the past year and think they are a poor investment. But if you're in for the long term then volatility isn't the same as risk. What's more, if you consider equity prices to be below the long-term curve then these funds could be the best bet for long-term growth.

One of the key things to check when switching in and out of KiwiSaver providers is the entry and exit fees. These are the percentage of your fund a provider takes when you either join or leave a fund. Most don't charge. But it's worth checking. It's also worth noting the fees charged by providers and or funds on your shortlist.

Fees vary hugely and can limit long-term growth. For example, the ANZ's annual investing fee is up to 1 per cent and trustee fees 0.065 per cent. This compared with a maximum of .542 per cent investing fees from AXA and AMP's .05 per cent trustee fee for its default fund.

What's more, the ANZ allows you to switch your investments within its funds - say from Conservative to Growth, twice, then charges $25 per switch - whereas AON doesn't charge for this service.

Confused? It's not easy. And this comparison only includes fund providers that start with the letter A.

The Sorted.org.nz website also contains a KiwiSaver fees calculator, which shows the total amount of fees you'll pay up until the age of 65 with different funds. For example, a 30-year-old earning $50,000 a year and paying 4 per cent contributions and receiving 2 per cent from an employer will pay between $7780 in fees with SuperLife KiwiSaver cash and $49,580 with Asteron KiwiSaver International Share Fund.

Fees shouldn't, of course, rule investing behaviour. SuperLife's low charging fund is a cash fund and therefore likely to produce low growth compared to Asteron's aggressive fund. It's more important to compare similar funds. Says Brighouse: "It is clear that some investment strategies cost more to carry out than others, especially those involving a lot of fundamental research."

For more information visit: Asfonz.org.nz/making-sense-of-fees.

The scrapping of fee subsidies by the Government can make a big impact on children's KiwiSaver accounts. Parents may want to consider switching to a lower fee fund.

The reason for this is that many kids' accounts only have the $1000 in them and are more likely to erode than adults' accounts where they are growing with contributions.

Monthly fees range from $2 to $5 and, combined with annual fees of 1-2 per cent, your child's account will begin to erode.

The other thing parents may be looking for in a children's KiwiSaver account is the ability to either put lump sums in from time to time or to put no deposits in at all, preferring other investments for children.

Children get older as well - much as some of us parents lament it - and their needs in a KiwiSaver investment may change.

You or they may, for example, in their latter teens want to begin investing in their KiwiSaver in order to take advantage of the mortgage subsidy, which takes five years to qualify for fully.

The mechanics of switching KiwiSaver providers is easy. Most providers such as Brook have a simple form to fill in on the website. Alternatively you can call an 0800 number or email and request an application form and investment statement.

Those that have gone through the internet switching process, says Brighouse, will be sent a pre-printed application form to check and return.

The provider then contacts the IRD on your behalf and your contributions will begin flowing to the new account.

The old provider has 35 days to transfer your existing balance. In the meantime you can check online at www.kiwisaver.govt.nz to see if the transfer has been made.