Time to exit unnecessary fees

All schemes must follow the same set of modern, competitive rules. Fees are regulated and transparent, and disclosed in a way that enables easy comparison. Right? Wrong!

In ASSET magazine’s April issue, we revealed that one KiwiSaver manager was using a publicly issued income fund to provide a related party loan in order to leverage its KiwiSaver fund. This month we raise the curtain on exit fees. 

WHAT IS AN EXIT FEE?

An exit fee or redemption fee is a charge imposed on an investor who wants to switch KiwiSaver schemes. In the old unit trusts’ world this was called a back-end loaded fund. Regardless of the terminology, the effect of an exit fee is that it reduces the value of your KiwiSaver if you wish to withdraw or switch.

WHO RECEIVES THE EXIT FEES?

Exit fees come in different shapes and sizes. They can be paid to the scheme to compensate the remaining members for the transaction costs incurred in funding the member’s withdrawal. So long as these charges are disclosed before an investor enters the fund, they are usually in line with investors’ sense of fairness. This is the case with the Nikko AM KiwiSaver Scheme that charges a modest entry and exit spread.