James made the comment in response to the Green Party’s plan to introduce a “public option” KiwiSaver default fund, managed by the NZ Super Fund, which the Greens claim could reduce KiwiSaver fees by up to 40%.

“While the idea of the Super Fund being the only default provider is inherently sensible the current political and public obsession with Kiwisaver fees is a red herring,” James said.

“KiwiSaver investment management fees are low by any standards. Total costs just appear high at present because member balances are still relatively small and the administrative costs are too high. Both of those factors will normalise over time.”

Instead, the greatest cost to KiwiSaver investors will come “in the form of their own behaviours.”

He referred to an international study by financial services market research firm Dalbar that found investor returns “lagged market averages” by as much as 5% per year.

Over the twenty-year period studied, equity investors earned 3.83% and asset allocation fund investors earned 2.56% compared to the S&P 500 return of 9.14%.

For the same period, fixed income investors earned 1.01% compared to the Barclays Aggregate Bond Index return of 6.89%.

“The 2011 study also found that the average equity investor has increased retention rates from 3.22
years in 2009 to 3.27 years in 2010. However, this still falls far short of the optimum needed to take
advantage of market performance,” the report said.

“The psychological factors that batter away at average investor returns remain dominant and the “code” to crack these behaviours remains elusive.”

James said of the survey’s findings: “That is a cost many times greater than the fee issue currently being debated.”