The proposed guidance sets out the FMA’s regulatory approach to the KiwiSaver Act’s requirement that KiwiSaver fees not be unreasonable. It sets out that fees charged to members need to be regularly reviewed to ensure that members are getting value for money.

An FMA statement accompanying the guidance states that, “despite our expectation of competitive pressure on fees over recent years, there has been very little shift in fees when fees are weighted by the amount of dollars invested in the fund”.

“The FMA has repeated that we expect average fees to reduce as funds under management increase, based on the assumption that marginal costs for each additional dollar invested are low. This has not occurred in fixed dollar terms, with only some minor movement in the percentage fees on offer to investors.”

Examples shown where fees should be expected to reduce, include:

·         when funds under management increase and fixed costs reduce due to economies of scale
·         a shift from active to passive investment management
·         when third party manager costs have fallen

The proposed guidance also points to the variety of regulatory tools the FMA may use to monitor and enforce the relevant obligations. Including a “stop order” which could prevent a fund the FMA saw as charging unreasonable fees from advertising or gaining new members. An example of the hard line that will be taken by the regulator if the proposed guidelines are not adhered to.

Consultation closes on December 14 and the FMA intends to review submissions and publish the final guidance note in early 2021.