Caroline Ritchie: No switching off that fees clock

Caroline Ritchie

SOMEONE once suggested that we do not change when we see the light, but when we feel the heat.

Fixing up your diet after a heart attack or having any other near-death experience that provokes lasting change provide the classic examples.

It is harder to be dramatic about fees over KiwiSaver or long-term investment portfolios, yet the heat is very much on, every day.

Let's get this straight: fees make a dramatic difference over time, no matter which strategy you choose.

A fund starting with $10,000 and returning 7 per cent per annum will be worth $150,000 in 40 years. Add a 2per cent annual charge and those savings drop to $70,400. Nearly half your earnings went in fees. Additional contributions, inflation and market fluctuations have been ignored to keep it simple, but I think the point gets itself across. Just like eating healthy food and exercising daily, having your nest egg in a low-fee place is something everyone knows they should be doing. Or they should know. If you do not, phone me and I will sort you out.

But how do you really know if your fund is low-cost? The salesperson writing your retirement plan is allowed to call his product whatever he likes - there are no restrictions on the nomenclature of fees. Any old piece of funds management can call itself "low fee", a bit like in the old days when things were labelled "low fat", but turned out to be a lardy 10 or 20 per cent pure trouble. I have written before that I believe that there can be a place for a place for "higher" fees, but only on long-term justification of performance over benchmark and an effective working relationship.

That simply means your guy has to beat the index, net of fees, every single year, and be there to save you from yourself when things get tough. Those advisers are rather thin on the ground, if they exist at all.

Anyway, back to the rest of us who do not require fancy assistance and simply want to get the best deal on KiwiSaver. The first thing you need to do is get real.

Every day you exist, whether you get out of bed or not, fees are being charged over your stash. At Christmas, they're still siphoning those expenses. On your birthday, as you enjoy hundreds of half-hearted Facebook greetings and a cool glass of celebration, the fee clock steadily ticks through your cash. Many well-known names charge considerably more than others, once you read the fine print. You may be surprised how many high-fee KiwiSaver funds are out there. Is yours one of them?

KiwiSaver is a very long-term plan, and I strongly suggest against you checking it all the time, but you must treat the whole concept of it with immediacy.

Letting things slide for a few years because you think your balance is small or you do not understand what you are invested in is not an excuse. Feel the heat now. Understand what this means for later.

The second thing you need to do is take responsibility for knowing exactly how much you are being charged. If you do not look at the fees yourself, you are making a blind guess. This is not a game of "It's In The Bag" and Selwyn Toogood is not the ringmaster of retirement choices. This is what you will have to live off for 20 or 30 years, and I personally would not count on a lot of national superannuation to supplement it. If you do look at the fees but do not understand them, see the fund manager and ask. If that is too intimidating, (because they shall talk you half to death and tell you it's all low-fee compared to everyone else anyway), see me. I will make it very real.

-Caroline Ritchie is a former AFA, sharebroker & portfolio manager. She runs Investment Stuff, an investment coaching service. Visit her at www.investmentstuff.co.nz. Statements in this column are not financial advice.