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Source: Financial Markets Authority

Media Release
MR No. 2020 – 37
2 November 2020

The FMA today published a consultation paper setting out its proposed guidance on KiwiSaver fees and value for money. The consultation is open to the public for six weeks.

The proposed guidance sets out the FMA’s regulatory approach to the KiwiSaver Act’s requirement that KiwiSaver fees not be unreasonable and the related overarching statutory duties in the Financial Markets Conduct Act 2013, including the duty to act in members’ best interests. The proposed guidance sets out that the obligation not to charge an unreasonable fee is ongoing, and fees charged to members need to be regularly reviewed to ensure that members are getting value for money. The guidance will clarify:

  • the statutory duties of managers and supervisors in relation to fees and value for money
  • what factors should be considered when assessing whether fees are unreasonable and whether KiwiSaver fees are providing value for money
  • examples of when fees may be unreasonable
  • the FMA’s role and enforcement options.

KiwiSaver fees have a significant impact on the overall returns that KiwiSaver members receive from their schemes. Management of KiwiSaver funds is a valuable service, from which providers are entitled to earn fees.

The FMA has focused on fees in the context of whether KiwiSaver schemes are providing good value for money for New Zealanders. Despite our expectation of competitive pressure on fees over recent years, there has been very little shift in fees when fees are weighted by the amount of dollars invested in the fund.

The FMA has repeated that we expect average fees to reduce as funds under management increase, based on the assumption that marginal costs for each additional dollar invested are low. This has not occurred in fixed dollar terms, with only some minor movement in the percentage fees on offer to investors. Independent research1 has shown that the global trend is a decrease in fees for passive funds, and suggests that fees charged by KiwiSaver providers are high compared to broadly similar funds in the UK. Benefits of scale – at least for the larger providers – do not appear to have been passed on to KiwiSaver members.

The proposed guidance sets out the expectations for licensed supervisors to monitor the schemes they supervise for compliance with their obligations under their trust arrangements, including that the fees charged are not unreasonable. This means regularly reviewing fees charged against underlying costs to ensure they are not unreasonable and also assessing whether members are getting value for money.

Examples are shown where fees should be expected to reduce, including:

  • when funds under management increase and fixed costs reduce due to economies of scale
  • a shift from active to passive investment management
  • when third party manager costs have fallen

The proposed guidance also considers the impact of annual or monthly membership fees which can potentially erode members’ balances and have a disproportionate effect on members with low balances. The members’ interests must be put first and they must be treated equitably. A membership fee that erodes a member’s low balance is likely inconsistent with these duties.

The proposed guidance also points to the variety of regulatory tools the FMA may use to monitor and enforce the relevant obligations.

Consultation closes on 14 December and the FMA intends to review submissions and publish the final guidance note in early 2021.


Media contacts:

Andrew Park
FMA Media Relations Manager
021 220 6770

Campbell Gibson
FMA Senior Adviser, Media Relations
021 945 323

1Download KiwiSaver Fees Comparison PDF