KiwiSaver is 12 and the time for excuses has passed
It's time to grow up, KiwiSaver. You're 12 years old now and we're frightened you're becoming a brat.
We've spent all these years pouring money into you and we need you to behave like you're part of this family. We all live in this fund together.
There's going to be no more monthly pocket money for sitting on your chuff. You want pocket money from us? You'll need to earn it.
There's also going to be no more payments for doing well. We never should have started that and have to admit it was our mistake. We were so desperate for you to succeed we gave into all sorts of things and should have put more boundaries in place.
You're old enough to hear this now. It was ridiculous giving you new Nikes just because you can read a book faster than the average village idiot. You did more somersaults than your cousin and we got you a smartphone. She was only five at the time and you were 10. Our benchmarks were so loose we started believing you were something special.
Don't cry KiwiSaver, you're big and sturdy. We've given you all the tools to succeed and a great start to life. There's no need for the cotton wool and trumpet-blowing.
You're 12 and the family name is your ticket to success. Anyone called KiwiSaver has a blessed life, just by being one of us. The money will flow.
But we have responsibilities and it's time for some tough love to kick in.
One annual management charge
If it sounds like a reasonable conversation to have with a 12-year-old, then the government has some work to do as a parent to our retirement funds.
1. Remove the monthly membership fee on KiwiSaver: It's ticket-clipping for no work.
2. Remove performance fees from KiwiSaver: They are a mistake that was accidentally accepted into a national retirement scheme.
3. Demand one annual management fee: It's fair and transparent. Membership fees are a pesky legacy of the past. They're now outdated and well past their original purpose. They were invented to prop up fund managers when fund flows were low and the costs of the scheme were born upfront. Charging each person $2 to $4 a month as well as the annual fee (a percentage of their balance) helped pay the bills.
Now we have $59 billion of family wealth, there's a fully functioning business model to support new savers and dormant savers. They all have a future lifetime value.
Don't be fooled into thinking bank accounts charge us a monthly admin fee, therefore this is normal. In funds management circles it's not normal. Not here, not internationally.
BNZ clocked it and withdrew this charge six months ago. Others need a giant shove.
Membership fees average $31.27 a year, per person. With almost 3 million of us in the scheme, that's a whopping $92 million admin fee with a flimsy justification. Managers are earning $388 million in annual fees on top of this. Total fees have risen 15 per cent in 12 months.
The performance scam
Then there are performance fees. The spoilt-brat-fee of funds management. The two main managers using these are Milford Asset Management and Fisher Funds, but others choose to employ managers offshore who charge these fees.
These managers don't have magical skills. Every active manager is paid to attempt to beat the market. They have no place under the KiwiSaver brand and are nothing short of a mickey-take.
All the sobbing over high-water marks and aligning interests is spin.
An even cheekier rort is when managers use a cash-plus model rather than out-performance being measured against a similar benchmark index.
It's the equivalent of a bunch of rocket scientists linking their pay to flying higher than a spluttering turboprop.
Even the regulator, the Financial Markets Authority (FMA), appears hamstrung. They say there's no law against it, so if you declare it and explain it, it's okay. Investors end up with marketing spin, not an honest disclosure that this is an irregular practice, widely frowned upon.
The FMA's annual KiwiSaver report expresses surprise that fees are rising, not reducing from competition. What competitive forces are they expecting with 3 million of us locked in and largely deaf to the fee conversation? Switching behaviour isn't mature yet.
When it comes to parental advice most of us recall those sage words, "just because you can (long pause) doesn't mean you should". When it comes to fund managers, if they can (short pause) they will. Boundaries are a necessity the government must think long and hard about.
Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.