How 1.3% really is 25%, and why that matters.
Fees in KiwiSaver are making headlines these days, and rightly so. It's high time they did.
Actuaries have shown that the average Kiwi will pay almost $55,000 in KiwiSaver fees over their working life, That's more than the $37,000 they will pay for Power, and $36,000 for their mobile phone.
It’s a BIG number. For KiwiSaver providers it added up to $357m in revenue last year.
What the press (and Simplicity) are telling you is the dirty little secret of the funds management industry.
The industry loves to charge a % of funds under management. Why? Because it sounds like a small number (and they want you to think it’s a small number), and because they can.
Think of it this way. History tells us that the average KiwiSaver portfolio is likely to make something around 5.2% over the long term. If fees are (as they are now) 1.3%, that means one quarter of everything you make goes in the form of fees.
Let’s say that again. Roughly 25% of what the average KiwiSaver earns in their account will be swallowed up by fees. That’s how 1.3% compounded annually over a lifetime of working will stack up.
That’s about the same percentage as many people pay in tax, expect for that you get hospitals, schools and roads in return.
What do you get for our KiwiSaver Fees?
Some managers boast about 24 hr call centres and superior stock picking skills. All these things may be true, but do you think they would do all of that for half the price? We are betting they would, and will.
We certainly are.
The Herald recently reported that the most KiwiSaver expensive manager was charging 2.11%, while the cheapest was 0.49%. Simplicity will take on it’s first customers this week, charging 0.3%, 40% cheaper than the already cheapest fund.
Simplicity will save the average KiwiSaver member $33,000 in fees, which will stay in their account and end up being $65,000 more when they retire owing to the magic of compounding interest.
How do we do it? Very simply.
- We don’t get you to pay for shiny head offices and branches (we are 100% online).
- We don’t get you to pay for expensive billboards and advertising (our clients tell their friends about us).
- We don’t get you to pay others commissions to sell our product (we don’t pay commissions).
- We don’t get you to pay for fund managers yachts and sports cars (we buy low cost index funds that match the market return).
It really is that simple. We are working to make you richer in retirement, not ourselves.
Your Simplicity Team