The Government has finally released draft regulations to standardise the way KiwiSaver providers report their performance and returns. But do the regulations go far enough? Andrew Gawith shares his thoughts.
Interviewer: Andrew, the Government is asking for submissions on the draft regulations for KiwiSaver investment reporting. What are these regulations?
Andrew: In simple terms, what they’re trying to do is force providers to report directly comparable performance data, or investment returns data, and directly comparable fees data.
Interviewer: What do we think of the draft regulations?
Andrew: We support the idea of making investment returns and fees as comparable as you possibly can, so that members out there can actually compare what are two relatively – well, very important - aspects of KiwiSaver schemes. They’re not the whole comparison but they are two areas that members should be able to compare without being confused as to what numbers they are looking at. So the Regulations are a big step in that direction. Are they perfect? No, in our view, not yet. But we certainly support the implementation of them.
Interviewer: We’ve made submissions on this issue in the past. Have any of our recommendations been included?
Andrew: Well, there is more mention - in the case of investment returns - there is a mention of the Global Investment Performance Standards that we use now to report our returns and performance data.
[Global Investment Performance Standards (GIPS)]
And we would like - we would have liked - the industry to have been required to report returns using the GIPS approach. The Regulator hasn’t gone as far as that; they’ve indicated that they want to use some of the principles behind those standards, but there’s a bit of a mix of other standards in there as well. So we’re not going to end up with, in our view, the perfect performance comparison methodology, but it will be a hell of a lot better than what we’ve got now, which is a dog’s breakfast.
Interviewer: How do the Regulations fit in with how we report to our KiwiSaver members?
Andrew: Well we regularly produce in-the-hand returns for members. You know, by the time you get your returns, everything has been taken off; that’s the money you would get if you asked for it today.
So one aspect that we’re going to submit again on is to encourage the Regulator – presumably in this case, the FMA or MED -
[FMA = Financial Markets Authority
MED = Ministry of Economic Development]
to produce one, ideally one, set of performance numbers or returns data. And that should be, in our view, your in-the-hand returns – after all fees, costs, expenses and tax have been taken off your returns – that is what you would have got in your hand.
[in-the-hand returns = after all fees, costs, expenses and tax]
Anything less than that to me is potentially misleading the investor to say:
- ‘here are your returns’
- ‘oh that’s what I’m going to get’
- ‘oh no, when you actually get it, we’ve had to take tax off it.’
So make it after all those; that’s how most investors would understand their returns to be. We’re advocating one return that we all use and we all know what it is.
Interviewer: Do you think the Regulations will actually help investors?
Andrew: Yes, they will help investors. Will they help investors as much as they potentially could? I am worried that, by producing at least two, maybe three versions of investment returns, and maybe two or three versions of fees… you know, you’re going to have a “total expense ratio” and then “fund costs and fees” and then “membership fees”… most providers will understand what’s being talked about, most members wouldn’t have a clue. So the Regulator’s got to get it in their heads that this is for members, not the Regulator itself, not for commentators, not for providers. What we’re doing here – should be trying to do here – is to produce simple, comparable numbers that members can understand and use. I’m not sure we’re there yet.