In April, the Financial Markets Authority (FMA) published guidance aimed at helping licenced fund managers ensure that their fees are reasonable, and also that those services represent good value for money.
Public Trust, in conjunction with other members of the Corporate Trustees Association (CTA) (previously known as TCA - Trustee Corporations Association), is working with the FMA on how the guidance should be uniformly applied to the schemes they supervise.
The first step in this work has been to design a review framework for supervisors to evaluate whether MIS managers are providing good value for money. Managers of KiwiSaver schemes are bound by legislation to keep their fees at a reasonable level. However, the prevailing opinion amongst customer advocates and the Government is that what qualifies as reasonable needs to be better defined across the industry. The FMA has introduced this guidance as a way for different providers to test their pricing models and products, in the context of the schemes they manage.
Public Trust, along with other licenced MIS supervisors, is now helping trial this framework via a pilot programme with the FMA. Each supervisor has been asked to select three or four of its supervised MIS managers to take part; and to include both KiwiSaver and non-KiwiSaver funds. A questionnaire has been sent to each of the pilot MIS managers to complete.
The questionnaires are expected back for analysis and evaluation by the FMA and the respective supervisor in August. After the responses have been evaluated further consideration will be given to the review process based on the learnings with the expectation that the resulting approach will be rolled out to all MIS Managers over the next year.
Based on the TCA’s conversations with the FMA to-date, it is recommended that managers should take account of the FMA’s guidance as a priority, if they haven’t already. A robust self-review should also take place, which will assist their supervisor’s subsequent review process.
It should be noted that the FMA’s guidance states that if fees are assessed as unreasonable, managers may need to reimburse their clients - backdated to when the guidance was released.
In general terms, the FMA expects that membership fees (such as monthly fees paid by KiwiSaver members) will cease to be charged, unless the MIS manager is a new provider. Where a manager achieves economies of scale through the growth of funds-under-management, the equitable sharing of benefits with underlying investors, through lower fees, added services, or capital reinvestment, is expected.
The FMA also expects that the manager will be able to demonstrate that where trail commission or advice fees are being paid (either by the fund or directly by the investor), the advice is actually being received and that the advice provides value for money.