Dust-up looming over FMA’s value-for-money initiative

Chapman Tripp partner Tim Williams said there has been a lot of debate about the FMA’s value-for-money report released in May and whether its aim is to encourage the industry or spell out legal requirements. It’s probably a bit of both, he said.

In Williams’ view, applying the value-for-money guidance to KiwiSaver schemes is relatively straightforward. The rules attached to the KiwiSaver Act 2006 make it clear that fees must “not be unreasonable” and the regulations define that as being “significantly higher” than other comparable funds. So, the regulator would be looking for outliers.

But for non-KiwiSaver funds, the requirements around fees are more murky. “The justification [for applying value-for-money] seems to be that fund managers have a duty to act in the best interests of members,” Williams says.

“But that duty is to be exercised or required only when the manager is exercising powers or performing duties…. And what they charge when not exercising powers or performing duties is not subject to the best interests test. So there is a difference between KiwiSaver and non-KiwiSaver schemes as far as the obligation around fees goes.”