Personal finance editor Amanda Morrall talks to fund manager Carmel Fisher about takeovers, savings, performance benchmarking and the long-term future of KiwiSaver

Amanda Morrall talks to Carmel Fisher about takeovers, savings, performance benchmarking and the long-term future of KiwiSaver

By Amanda Morrall email

Fisher Funds officially grew its KiwiSaver membership by 100,000 on Tuesday following regulatory approval of its bid for Huljich's retirement savings business.

Managing director Carmel Fisher said the expansion would add another NZ$200 million to its KiwiSaver funds under management at the boutique firm, bringing to NZ$421 million its assets in KiwiSaver.

Fisher said individual KiwiSaver investors could expect to see a reduction in membership fees and cost because of the added volume.

"Longer term it means we can have sufficient scale so we can reduce costs right across the whole of the membership base. With scale we'll pay less for trustee fees, printing and all sorts of other things. On the flip side it does mean we have extra work because the volume of calls is huge compared to what we had in the past.''

Under the deal six employees from Huljich will join Fisher Funds to help manage the additional office work, as well as 30 distributors to sell to potential investors in Fisher Fund KiwiSaver's two funds. (See original story on take-over here).

Huljich Wealth Management executive chairman John Banks said its former members would be in good hands with Fisher Funds.

"Our members are moving to a provider that is committed to best practice, cares about its members and is committed to KiwiSaver for the long term.”

The take-over moves Fisher Funds from 13th to fifth place in terms of overall membership numbers and puts the provider in 10th place in terms of funds under management.

Default provider OnePath, with schemes and funds under the National Bank, ANZ, SIL and OnePath brands, announced last week its membership exceeded 400,000 with NZ$2 billion under management.

Fisher said the company continues to be on the look-out for other potential KiwiSaver acquisitions, specifically Tower should its KiwiSaver business come up for sale.

In the meantime the company (based on Auckland's North Shore) will focus on growing its business through wider distribution channels.

Mike Pero distribution

A separate deal was announced last week whereby Fisher Funds will partner with high profile mortgage broker Mike Pero (which has 42 franchises nation-wide) to exclusively sell its KiwiSaver fund through its agents. (See Amanda Morrall article here).

Fisher said the two developments would help the company build a national brand and reach a new audience - the first time investor.

Although the Government warned the nation last week that it would be reducing Member Tax Credits as part of a budget crackdown on spending, Fisher said she was optimistic the changes wouldn't hurt KiwiSaver's longer term prospects or its attractiveness for investors.

It's widely speculated that National will reduce Member Tax Credits (which match employee contributions dollar for dollar up to a maxiumum of NZ$1043) by 50%. However Fisher said the NZ$1,000 kick-start and employer contributions, plus a reduced tax credit, still made KiwiSaver an attractive proposition.

"It's (the tax credit) that would still be okay. It's tax effective, its money you wouldn't otherwise have had, it compounds every year, it's worth having especially as you'll still get that NZ$1,000 kick start.''

Fisher said she expected the reduced Member Tax Credit would be offset by other tax initiatives that would encourage savings.

"Bill English and John Key have both stressed the importance of savings, so they have to introduce something if they want to be true to their word.''

(For National's 2008 pledge to retain KiwiSaver in its current form, click here).

'Destablising changes undermine confidence'

Fisher said providers were willing to accept (in the face of unanticipated economic blows delivered by the global downturn and the Christchurch earthquakes) that some sacrifices had to be made, but said further changes would destabilise the savings industry and undermine confidence.

"What I'm looking for in the budget is the rhetoric to say: "We are absolutely committed to long-term savings. We don't want to muck around with KiwiSaver, we've regretted having to doing it and only did it because of the unusual circumstances...that's what I'm more interested in hearing.''

While providers may be looking for some assurances, KiwiSaver themselves (of which there are now close to 1.7 million) are increasingly looking for accountability from their providers given questions over the reliability of performance benchmarks.

Because there is no regulatory reporting standard for providers, the manner in which returns are calculated may differ from one provider to the next, yielding a distorted basis of comparison.

Fisher said she welcomed any regulatory reforms that would improve reporting mechanisms, but felt the existing performance benchmarks played a valuable role.

"I wouldn't not invest because you think you can't trust anything. There has to be a starting point. Even if they have a slightly different approach to calculating returns, it will only be at the margin because you can't make up returns.''

"Where there is less clarity is in how much of the fees are disclosed. Sometime they'll lump together administrative fees and they're not particularly clear.''

Management fees are by far the largest one and that's the one you'll want to be taking note of, warned Fisher.

"One percent is the industry norm and those are the sort of questions people should be asking.''

So how does KiwiSaver fare compared to other managed funds both here and in New Zealand?

"I have to say average returns have been pretty good,'' said Fisher.

"In some ways the timing of the KiwiSaver launch was good because it was near the bottom of the financial crisis. Initially investors had these negative returns, but then they got the benefit of the recovery in 2008 and 2009.''

Without the added benefit of the NZ$1,043 Member Tax Credit, some might question whether KiwiSaver is still a good long-term bet.

As long as employers were continuing to pay into it and there was some contribution from Government as well as the kick-start, Fisher argued that it held an advantage over regular superannuation schemes.

"Somebody else is paying to help you save and you don't get that in other managed funds.''

The biggest advantage of other managed funds was that they weren't locked in until age of retirement, she added.

While some might perceive that as investment liability, Fisher said she believed it was a positive thing.

"I would argue it's important to have some locked in money as we all get tempted. Circumstances change or we're tempted to buy something we want to buy, so it's easy to dip into our savings and say look I'll top it up later, but we don't have the luxury we need to lock in our savings because the government can't afford to keep us in this lifestyle.''

In terms of performance, Fisher said her KiwiSaver Growth Fund mirrors the performance of Fisher Funds New Zealand, Australian and International Growth Funds because the former invests in the latter. She said managed fees were lower for the KiwiSaver fund. (For more on Fisher Funds KiwiSaver performance, click here).

To see interest.co.nz's comparative performance ranking list click here.

For comparison sake, here's Mercer's calculated returns on the various KiwiSaver funds, although they seem to miss out Fisher Fund's Growth Fund, which outperformed the Aon Russell Lifepoints 2045 Fund in the year to March 31 2011

To see more detail on the rate of return on Australia's 200 largest superannuations funds (as reported by the Australian Prudential Regulation Authority) click here.

Here's the top 10 performing funds (of the 200 largest Australian superannuation funds)

*Updates with comment from Huljich's executive chairman John Banks.