Making Sense of Fees
Make sense of the fees a KiwiSaver provider charges you
To understand how much you are really paying in KiwiSaver fees, you have to demystify the myriad of ways different providers describe their fees.
Points to consider:
- While there are many types of fees, you can group fees together to arrive at an overall measure of fees charged.
- The more fees you pay, the more your scheme must earn to make up those fees.
- Paying higher fees does not necessarily buy you better returns, but it does generally buy you more flexibility.
Workplace Savings NZ thanks the Sorted.org.nz website for providing the information below.
Plan Membership Fees:
- Administration Fee: Pays for your membership in the plan. It may be a dollar amount each year (regardless of the amount invested), a percentage of the assets invested or a mixture of both.
Also known as: Membership fee, account charge, application fee, policy fee, monitoring fee.
- Entry Fee: Pays for the expenses of setting up records. It could also be income for the provider and/or a fee for the introducer. The entry fee is usually deducted from your investment before it is invested, or deducted from your first investment return.
Also known as: Placement fee, arrangement fee, application fee, set-up fee, establishment fee, initial charge, service fee, buy/ sell spread fee.
- Exit Fee: Pays for converting your investment into cash and sending your money to you. Sometimes the exit fee is a penalty for not staying in a product for long enough. Make sure you know what fees you will have to pay if you leave.
Also known as: Redemption fee, withdrawal fee, benefit payment fee.
- Out of Fund Costs: Pays for the cost of preparing and auditing the annual accounts, stationery, printing and meetings as well as legal fees, registry fees and custodian fees. The provider may pay these straight out of the fund so that all investors pay their share and the investment returns are reduced by the expenses. In other cases, the provider may pay them from other fees they receive so the investment return is not directly affected.
Also known as: Disbursements, expenses, professional fees (for legal or accounting costs), recovered expenses, recoverable expenses.
- Trustee Fees: Pays for the people (or company), which are usually independent of the provider, that oversee the provider's activities on behalf of the investors in the product or trust. Under trust law, the trustee has specific responsibilities and is there primarily to look after investors' interests.
Also known as: Trustee service fee.
- Servicing Fees: Pays for ongoing commission to the adviser who sold the plan to you. They may continue to get this commission even if you have nothing further to do with them. The contribution is usually a regular deduction from your plan’s investments - you may not see the deduction but it will probably reduce your return.
Also known as: Trailing commission, contribution fee.
- Consulting Fee: Pays for the cost of advice from an adviser - whether it's working out what kind of plan to offer employees, which provider to use, or perhaps helping with the plan’s implementation. The consultant could also have an ongoing role to deal with members’ queries.
Also known as: Advisory fee.
- Investment Fees: Pays for the investment manager that is responsible for the day-to-day decisions about where the plan's money is invested. The investment manager could be the product provider (such as a bank) or someone else altogether. The fee pays for the investment manager's costs in considering possible investment, weighing up whether to replace or add to existing investments, and keeping an eye on good deals for their investment products. Investment fees are charged on a regular basis and deducted from your return.
Also known as: Fund management fee, investment management fee, recurring management fee, on-going management charge.
- Monitoring Fees: Pays for looking after your overall portfolio of investments, in addition to other fees associated with the plan. It can also cover such services as preparing quarterly reports and tax statements, providing advice on changes to your strategy, or providing a transaction report.
Also known as: Asset management fee.
- Brokerage: Pays for the transaction costs of a third party (such as a share-broker, real estate agent, bank or investment broker) for buying and selling investments on behalf of the plan’s investment manager.
Also known as: Dealing costs, transaction costs, buy/sell spread.
- Switching Fees: Pays for moving your investments within the product you have chosen or between products. If you're selling and buying shares, the switching fee will be in addition to the brokerage fee.
Also known as: Processing fee, handling charge.
- Brokerage: The buying and selling of nearly all investments by a master trust (or by one of the underpinning products) will incur brokerage. Some products effectively charge that brokerage directly to incoming and outgoing investors through a difference in unit prices (sometimes called a “spread”). Other products charge the brokerage to the fund as a whole through reduced investment returns. In that way, all members bear the cost of buying and selling assets. Whether the brokerage is disclosed or undisclosed, the members of all products directly or indirectly bear the brokerage costs of buying and selling investment assets.
- Consulting Fees: A consultant can be employed on a number of different bases. The fees will usually be by agreement and often based on a cost per hour.
For a comparison of the fees charged by KiwiSaver default providers please click here.
Would you like to know more? Click here for the Inland Revenue's KiwiSaver website .