New provider will pay it forward for KiwiSavers

Sam Stubbs talks about the new KiwiSaver provider. Picture / Doug Sherring

Finance industry boss Sam Stubbs aims to shake up the KiwiSaver industry.

A new not-for-profit KiwiSaver provider has been launched by ex-Tower and Westpac executives promising to shake up the industry and save the average member up to $65,000 by the time they retire.

Sam Stubbs, who was chief executive of Tower Investment, which was one of the country's largest wealth managers, and Mark Fitzgerald, who headed up Westpac's private wealth business, have today launched Simplicity - an online, passively managed index-based fund.

Fees for the average KiwiSaver are currently 1.3 per cent a year. Stubbs, who is self-funding the start-up, says Simplicity's administration fee will be just $30 a year, plus a 0.30 per cent a year fund management fee.

Passive funds track market indices and cost less than active funds where stock trading requires more work.

Simplicity will use US low-cost fund manager Vanguard. Based in Pennsylvania, it manages approximately US$3.4 trillion in assets and has thrived on undercutting fees in the US and around the world.

Stubbs says the asset management industry in New Zealand is "ripe for an Uber moment and this is it".

There were no official numbers but he estimated the industry was making net profits of about $120 million today and that could grow to $1.3 billion by 2030.

"The existing players will not change this, it's too profitable and they don't want you to know about it. So we're the disruptive model. Call it Uber, call it Airbnb whatever you want."

Having been successful in the finance industry Stubbs wanted to give something back to the country.

By charging reduced fees, Simplicity estimates the average KiwiSaver (over a lifetime of saving) could be about $65,000 wealthier in retirement, based on like-for-like comparisons using industry data.

Simplicity would target the default providers and banks that were largely providing generic off-the-shelf products, Stubbs said.

For New Zealand the combined total of those fees represented an enormous amount of money, he said.

"Because that is pretty much money that will go offshore."

Vanguard would offer a much cheaper service to manage international equities. The local equities would be managed by Stubbs and his team.

They would offer similar options to other providers, ranging from conservative to growth funds, depending

on the split of bonds and equities.

That combined with the online-only model and use of profits to further reduce member fees would drive the savings.

"We'll start with the lowest fees in the market and we'll apply a sinking lid," says co-director Fitzgerald.

"Our expectation and hope is that we will drag the rest of the market down."

The other directors on the Simplicity board include ex-head of supervision at the FMA Kirsty Campbell, former Cabinet Minister and CEO of the Financial Services Council Peter Neilson, and tech entrepreneur Jennene Crossan.

Stubbs will be managing director and sit on the board of the Simplicity Charitable Trust.

About 30 people were involved - mostly working on a pro-bono basis, Stubbs said.

Simplicity also plans to send about 15 per cent of its management fee to the charitable trust, to be focused on financial literacy programmes.