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KiwiSaver is already raising the level of financial debate across New Zealand, with some predicting that 80 per cent of Kiwi workers will be in the savings scheme within five years.
For now, it looks likely this number will be closer to 50 per cent, but KiwiSaver is prompting conversations in homes and workplaces about investing, personal finance and preparing for retirement.
And one of the first things they are talking about is, what are managed funds all about anyway? The average New Zealander could be forgiven for having a hazy grasp on this form of investment.
"A managed fund or investment is made up of a pool of mon- ey from many people who have similar goals," says Vance Arkinstall, chief executive of the Investment Savings & Insurance Association.
A professional investment manager invests the pool of money in line with the goals of the investors, purchasing securities in a variety of asset classes including shares, property, fixed interest, cash or a mixture of these.
The goals might be to generate long-term growth or to provide regular income while maintaining the investment's value over the short term.
Fund management has always been done on a relatively small scale in NZ, largely because the tax system the past 10 or 15 years has not been particularly generous to investors.
KiwiSaver will give most people their first close-up view of managed funds at work, and fund managers are hoping they will like it and put more of their savings into the diversified investment class.
Roger Perry, general manager of saving and investment at AMP Financial Services, says: "When people have additional money to invest, a lump sum or their income has reached a level where they have surplus income, then, having built up experience with managed fund [through KiwiSaver] they will be more amenable to [investing in managed funds]. We are already seeing boutique fund managers springing up in anticipation."
"There is a misconception out there all KiwiSaver investments will be ultra-conservative giving returns of four or five per cent," says Jeff Matthews, Spicers Wealth Management senior financial adviser. Axa, owner of Spicers Wealth Management, will be offering Kiwi-Saver members actively managed funds, some of them high growth with relatively higher returns.
You should expect to pay a fund manager an annual management fee in the region of between 0.5 per cent and 2.0 per cent. The annual management fees for Guardian Trust's funds are between 0.75 and 1.25 per cent, says Michele Stanton, financial planning manager at Guardian Trust. There are other fees which may be included, such as entry, exit and early redemption fees.
Matthews predicts the 0.5 per cent fees charged by KiwiSaver default providers will mean in time, managers of more actively managed funds will bring their fees down to 1 per cent.
Boutique funds are experimenting with their own fee structure. Rebecca Thomas, director of Mint Asset Management, says her portfolio manager Shane Solly has his own money invested in his fund.
"[That way] everyone is trying to deliver the best they can rather than the large management funds that don't correlate with the fees," she says. Mint says it's charging 62 basis points less than the typical institutions.
Fisher Funds has structured its fees so that it earns a performance fee if it generates returns above the cash rate.
Director Carmel Fisher says it is important for investors to find out who receives what fees and who pays them - the investor or the fund manager.
"If an investor wants capital growth, look for the best growth manager. If they want a good income, look for the manager who has consistently provided the best income," she says.
Some fund managers are accessible directly, such as Fisher Funds, others like their clients to go through a financial adviser.
Thomas points out the Kiwi-Saver default providers are not necessarily the best fund managers in the industry. She is hoping, in a few years' time, people will transfer KiwiSaver fund management from the default provider to their favoured fund manager with whom they are doing more interesting things.
"We are offering something different from the index [tracked] portfolio," says Thomas.
While the KiwiSaver funds will be offering targeted returns of four or five per cent, managers such as Mint Asset Management are targeting a return rate of 13 per cent. "With the boutique funds, you are taking good returns. The risk is if you... go for a default provider, you get an anaemic rate of return compared with what you'd get if you put it in the bank. She says spreading your investment in a diversified equities fund is far less risky than directly owning high profile stock market shares.
