[GRTV] Rob Everett on value for money; the great KiwiSaver land grab and fees

What's value for money with KiwiSaver? Former Financial Markets Authority chief executive Rob Everett provides answers in this Good Returns TV interview.  [Including Podcast]

Rob Everett admits working out what is value for money “is a difficult topic.”

“What we were trying to do with value for money is acknowledge that it's not all about fees.”

He says, despite claims from the industry, that the FMA isn’t trying to drive every KiwiSaver provider to a low cost, passive index hugging model.

That would be a poor result for the industry and members.

See Podcast below

“We were also trying to acknowledge that for a lot of people, the difference between 50 basis points and 60 basis points or 75 basis points, it's not registering in their decision making.

“A whole bunch of other things are registering in their decision making, and sometimes it's been a challenge to work out what.”

Everett says increasingly, it's about what funds are invested in, what disclosures they provide members, the data the schemes give members and transparency.

“Value for money is partly about fees and returns. But…not all investors by any stretch of the imagination.”

He says at the moment the driving force is climate change and ESG factors, so now the FMA is worrying about greenwashing.

“Value for money was an attempt to say, we're frustrated about fees, and so we are going to push hard on fees, but it's not only about fees. And your value for money may be different from mine.”

While the FMA can’t regulate KiwiSaver fees, Everett would be wary going down that path.

“I'd be wary because I don't know we'd be any better at setting fees than anybody else. And actually setting fees, I think, is a slightly dangerous place to be.

The FMA has not pushed to get powers to regulate fees.

“What we've done instead is make a lot of noise. We're not quite sure what level the fees should be, but we're pretty sure they should be lower than where they are.

“And actually, the government took the same approach during the default provider review, so there was some commonality of view there.

“It's frustrating sometimes to push at something where you actually don't have the ability to say exactly what you think good looks like, but we have seen fees start to move. So I think the noise has had some impact at least.”

Everett says since the FMA started making noises some schemes had abandoning administration fee or lowered management fees.

“We have seen movements down by some of the bigger players. So, I think we've had an impact, but so have the low cost providers.”

Everett: says the FMA’s view is that every fund does not have to have the same fee, “or that even every fund has to have a low fee.”

Where a fund is charging a higher fee it needs to explain why.

“Some of the better performing funds after fees, have been reasonably expensive. So, we're not saying you can't charge high fees, but what we're saying is, if you've got a passive low cost that's got an index hugging approach, and you're not delivering spectacular returns, why are your fees at the top end of the range? And maybe there's a good reason.

Everett questions whether banks should have been able to get away with th big KiwiSaver land grab in the early days of the scheme’s launch.

He says” I don't know at the time that it was right, but one of the impacts of leaving it there for so long was that you built up these enormous balances of funds under management and collections of customers in the big organisations that didn't seem sufficiently incentivised to be creative and innovative.”

“I do think when the government did its default provider review, they seemed to have been looking for a better balance between small and more innovative players and the bigger players that have the resource.

“I suspect at the time, I may be wrong, there was a sense these players have the experience and the resource and the technology to get this thing off the ground.

“I think it's a shame given the markets we've been in. It took such a long period before it actually got recast a bit. But I think it's in a more balanced shape now, I would say, at least at the default provider level.