Shelley Hanna: Should my wife change funds?

Q: My wife and I belong to two different KiwiSaver schemes. Mine is an active growth fund with quite high fees, while hers is a passive growth fund with lower fees. We are self-employed and contribute $100 each month. My scheme has done much better than hers - it's worth $11,300 compared to hers at $9750. Should she change to a better-performing fund?

A: There may be several reasons to change schemes and performance is only one of them. There are other important issues such as investing philosophy, fees and communication.

First, the facts. If you have been a member since inception, you will have contributed $5100 yourself and received $5171 in government contributions - a total of $10,271.

Comparing that figure with the current value, your scheme has gained 10 per cent while your wife's has lost 5 per cent. As you are both in growth funds, this variation is well within the range of expectations. Growth funds have a larger percentage in shares which can fall by 20 per cent or more. In the past four years we have experienced a global financial crisis. This has severely dented confidence in financial markets and many funds have reported negative returns. Four years is not a particularly long time period to compare performance between growth funds.

Fees are often used as a tool of comparison between funds. An active manager may charge higher fees (including a performance fee) but that fee might be justified by higher returns.

So basing your decision on fees alone is not enough.

Communication and access to information are also important. Some investors like to get under the bonnet of their scheme and know how and why the manager makes investment choices. Other investors are not that interested in where their money is invested, but they still like to be able to check their current balance quickly and easily.

You don't want a year to go by before you discover that you didn't get all the tax credits that you were entitled to. If you haven't been checking your balance online at least every six months, I suggest you begin doing so.

There are dozens of providers and many funds to choose from. The providers range from large banks to boutique fund managers. The fund spectrum goes from low risk cash to high risk shares, from passive to active, hedged and unhedged. There are also ethical or socially responsible funds available.

You may like to discuss the issues further. Only an Authorised Financial Adviser (AFA) can give advice on KiwiSaver. You can search for an AFA on the website of the Financial Markets Authority (FMA) at www.fma.govt.nz.

It also gives guidelines on choosing and working with an adviser. There are 23 AFAs in Hastings and 28 in Napier. Not all will specialise in KiwiSaver but it is worth a phone call to find out.

Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide specific or personalised advice. If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.