Kiwisaver switch, mistake?

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Forums › Finance and wealth management › Kiwisaver switch, mistake?

David321

342 posts

Ultimate Geek

#303496 14-Feb-2023 15:03

Hi all,

I recently had Swain Woodham overseeing (i guess thats what you call it) my Kiwisaver investment, they had me with Kiwi Wrap and were charging 0.75% to "monitor" my account, Kiwi Wrap were charging 0.29% and there was a further fee of 0.27% meaning the total of 1.42% was quite high.

So instead of complaining about fees I switch to fisher funds, my broker was informed by them and has asked me for feedback, I told him the fees were to high and he has come back saying most of it was tax deductible which they did automatically and with the info he provided it made me think it was not the best move to switch? the thing I find interesting is the fact he said that most of my fees were tax deductible but with Fisher Funds they are not?

_David_

hsvhel

1092 posts

Uber Geek

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#3036430 14-Feb-2023 15:18

Without understanding the intricacies of both schemes aside from the whats outlined.

They write a very well structured reply!!

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JimmyH

2816 posts

Uber Geek

#3036453 14-Feb-2023 16:19

I question why you are paying a 0.75% fee for "advice", or why you need a broker? Over decades of contributions before you retire, that will put a huge dent into your returns and the real value of your balance when you retire. If you are in a passive diversified managed fund (which most Kiwisavers are) that just invests according to a formula, then, realistically I'm struggling to see what value you get for paying this.

I don't know what Kiwiwrap is, and you clearly have to pay some sort of management fee to Fisher Funds (or whoever you use). But what the heck do Swain Woodham actually do to add any value or justify a fee that is more than double what you pay to your actual fund managers?

mattwnz

19374 posts

Uber Geek

#3036476 14-Feb-2023 17:05

Must be a great business model to charge a % of a balance which grows over time. I don't understand how advice is done as a %, are they actually providing regular advice to you?

Mehrts

854 posts

Ultimate Geek

Trusted

#3036478 14-Feb-2023 17:08

Does their "advice" also increase as a percentage over time? Seems like an easy money grab!

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Handle9

9629 posts

Uber Geek

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Lifetime subscriber

#3036606 14-Feb-2023 19:55

You didn't make a mistake changing funds. In my opinion both fees that are not attractive.

Take a look at low fee index funds. In aggregate index funds perform much better than actively managed funds as they track the market and charge much lower fees.

To give you an example the Simplicity growth fund has 0.31% fee compared to your 1.0998-1.4225% with a net 5.21% annualised return over the last 5 years (ie after fees were paid).

Make up your own mind and do some reading.

antoniosk

2331 posts

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#3036707 14-Feb-2023 22:32

I switched from Fisher Funds, because the combined deductions were about 2.7% for the year, which was very high given the modest returns.

The tax deductability is a red herring and not sufficient in it's own right. Many Kiwisaver funds are in the Portfolio Investment Entity (PIE) tax structure, and I believe the most common application of 'deductability' is to adjust your total fee deductions in your account. I don't think you get a 'credit' to apply to your personal tax.

Regardless, as others are stating, far better to examine the funds you are in and the performance overall (and why). Higher fees are not bad in themselves if your fund is doing really well (which means the investment manager is very good), but simple index trackers can equally perform well as long as the markets continue to grow.

________

Antoniosk

allio

864 posts

Ultimate Geek

#3036762 15-Feb-2023 09:39

What a crock.

Don't be fooled by funds that point to their superior past performance to justify their higher fees. Over the long term (and that's all that matters with retirement savings) nobody can beat the market - it all evens out. The research shows that no active investment strategy can beat a totally passive one over the long term. Find the fund with the lowest fees and the most passive strategy and switch to it. Don't pay anybody a fee to manage, monitor or oversee anything.

The only part of your advisor's response that I agree with is that you seem to have switched to a fund that's not much better than what you had - it's another "high touch, high fee" type of product. And your advisor is correct that Fisher has a variable 0-2% fee that changes every year, making it hard to predict what you're actually going to be charged. I wouldn't use either fund, but if I had to pick I'd probably pick Kiwi Wrap.

Look at Simplicity - they have positioned themselves to meet pretty much the description I wrote above.

allio

864 posts

Ultimate Geek

#3036810 15-Feb-2023 09:53

JimmyH:

I question why you are paying a 0.75% fee for "advice", or why you need a broker? Over decades of contributions before you retire, that will put a huge dent into your returns and the real value of your balance when you retire. If you are in a passive diversified managed fund (which most Kiwisavers are) that just invests according to a formula, then, realistically I'm struggling to see what value you get for paying this.

I don't know what Kiwiwrap is, and you clearly have to pay some sort of management fee to Fisher Funds (or whoever you use). But what the heck do Swain Woodham actually do to add any value or justify a fee that is more than double what you pay to your actual fund managers?

It looks like Kiwi Wrap is a product that requires an advisor to be involved - you can't just sign up as a customer. Essentially it's a platform for Swain Woodham (or any other financial advisor) to apply their special investment strategy and then offer it to their customers. It's probably fair for them to charge a fee for their role in it, as long as you are looking for an "actively managed" type of fund.

David321

342 posts

Ultimate Geek

#3036958 15-Feb-2023 11:14

The thing I find interesting is that although the total fees come to 1.4225% my advisor tells me that 1.1525% is tax deductible so the fess I am actually paying and do not get refunded are about 1.0998% which is on par with most other providers (from what I have seen).

And according to him the fees with Fisher funds are not tax deductible meaning I would (from what I can see) probably end up paying more in fees with Fisher Funds.

So with everything considered I think I may be best to stay with Swain Woodham afterall, sure I am paying a broker to "monitor" my account, but at the end of the day fees are fees and as long as they are cheaper than Fisher Funds I could not care less who the fee money goes to.

_David_

mattwnz

19374 posts

Uber Geek

#3037043 15-Feb-2023 14:14

Would suggest reading some of Mary Holms NZ Herald articles on Kiwisaver on her website. One of the big things that can make a big difference to what you end up with are the fees.

duckDecoy

793 posts

Ultimate Geek

Subscriber

#3037062 15-Feb-2023 14:44

David321:

So with everything considered I think I may be best to stay with Swain Woodham afterall, sure I am paying a broker to "monitor" my account, but at the end of the day fees are fees and as long as they are cheaper than Fisher Funds I could not care less who the fee money goes to.

I suggest you take a look around at the fees from other providers, there are many with much cheaper fees than you've be paying. Simplicity is just one example.

JimmyH

2816 posts

Uber Geek

#3037152 15-Feb-2023 16:40

You should shop around and look at options. For example, ABS's fees range between 0.34% and 0.64%. So anywhere from a less than quarter to just under half of what you are paying now. And other managers have similar fee structures to the ASB.

So what you need to ask yourself is "what value am I getting for paying this high fee?". If you think they are a super-duper manager or have some special sauce that means their investment strategy means you get higher returns and/or lower risk than alternatives - and by all means stick with what you are doing. But if you aren't convinced that you get extra value for the high fee you are paying, then you have to seriously question why you are paying it.

This got me curious, so I threw together a quick spreadsheet to show what kind of difference it makes over the longer term. I assumed you pay $2,500 a year for 30 years, into a fund with a 6.5% rate of return on investments (not unreasonable over the longer term if they hold property, shares and other higher performing investments), with fees that are tax deductible, and pay tax at 33%. Then tried three different fee assumptions - 0.34%, 0.64% and the 1.42% you are paying.

The differences add up. After 30 years you will have contributed $75,000. The fund charging a 0.34% fee will have reached $143,299, the fund charging a 0.64% will have reached $138,341, and the fund charging 1.42% will have reached $127,028. So, for instance, comparing the 0.64% fund and the $1.42% fund, you would have paid an extra $11,313 in fees. In this case, is the advice Swain Woodham provides really worth $11,313 to you?

Only you can answer that question - but if I was going to pay additional sums of that order, I would want to at least have a very good idea of what I was getting for my money. And if you don't have the skill to weigh up these options then I would pay an independent financial advisor (one with no vested interest whatsoever in the decision you make) to advise you - the couple of hundred dollars they may charge is much less than having to pay $11K+ if you don't have to.

JimmyH

2816 posts

Uber Geek

#3037154 15-Feb-2023 16:44

Here's the model for what it's worth (it really is just a quick and dirty 5 minute spreadsheet). Each years balance is:

Last Years Balance * (1+(assumed rate of return - fee percentage) * (1 - Tax rate))+ that years contribution

Then run out for 30 years. I tried to post the actual spreadsheet, but it got all scrambled.