When you're looking to change your KiwiSaver provider, you should never choose a scheme just by looking for the lowest fees. Fees are important, you could save money over time, but this could be at the expense of the performance return you may receive.
My recommendation is to look for an actively managed fund that charges you reasonable fees, not necessarily the lowest fees. And look for a fund that doesn't charge performance fees.
The lowest fees are typically charged by passive funds but they are like computer programmes which buy blindly into the markets to follow an index. As the value of each investment in the index rises and falls, the passive fund automatically buys and sells shares so that the number of shares it holds always matches the percentage of the total value of the index that each share represents. There's generally no subjective analysis or interpretation going on here. If a particular investment is clearly on the way down, the passive fund still holds it. Is that how you would want your retirement savings treated?
What you get from an active fund In contrast, I prefer actively managed funds, even if they typically charge higher fees than a passive fund manager. An actively managed fund is a KiwiSaver fund managed by a team of investment professionals who undertake detailed and ongoing research into the hundreds of companies and investment funds where they could allocate your money. This allows them to make investments that they think will outperform the market average. It also means they can withdraw from investments that their analysis tells them are likely to underperform in relation to the market and around market events.
Of course nothing's guaranteed, but a good team of investment managers, supported by research analysts, should be able to outperform a market index over the long term.
Active management costs more than passive index tracking, so the fees are likely to be higher. But they should still be reasonable and you should always remember that like anything in life, you get what you pay for. Don't be fooled into believing low fees will automatically deliver the best outcome.
Performance fees - a fund manager shares the upside, but what about the downside? Some active fund managers charge a performance fee - which means they pay themselves a bonus when they beat the targets they set themselves. I don't agree with performance fees. As I see it, performance fees are designed by fund managers to favour fund managers. When a manager performs well, they get a healthy bonus. But when the fund manager underperforms, there's seldom any suggestion that they should share in the downside. Any structure like that is lopsided.
The best fees are reasonable charges for professional services, stated transparently.
At Summer that's exactly how we operate. We charge an annual account fee of $36 per year and an annual fund charge of 0.9 percent of the value of your investment.
That sounds like a fair deal to me.
Martin Hawes is Chair of the Summer Investment Committee. The Summer KiwiSaver scheme is managed by Forsyth Barr Investment Management Ltd. You can obtain the Scheme's product disclosure statement and further information about the Scheme at www.summer.co.nz, or by calling us on 0800 11 55 66. A disclosure statement is available from Martin Hawes, on request and free of charge.