Why fees matter

Investments aren’t free. You’ll typically pay someone a fee to make them for you. If you invest on your own behalf, you may still have to pay fees, for example to brokers. Any fees you pay reduce the return you make so it’s worth spending time comparing your options before you invest.

How fees stop your money growing

Fees and cost always reduce the amount of return you’re paid, for as long as you hold the investment.

Below, you can see the difference fees make to your total return. In this example, if you invested $10,000 over 15 years in an investment with a 6% return, you’d end up with an extra $1,794 by choosing the investment with lower fees.

Impact of fees
You should only pay higher fees if you’re confident you’ll be persistently rewarded with returns high enough to make it more financially worthwhile than an investment with lower fees.

For example, if you were confident that by paying the higher 1.25% fee, you’d make a 7% return on your $10,000 investment, it would be worthwhile. This is because your return after fees would be higher than if you’d paid lower fees and achieved a 6% return.

High risk and high fees often come together. This is based on the assumption that whoever is making the investment is so skilled at managing the high risk, they persistently produce high returns regardless. This is quite an assumption to make. You need to be very comfortable the skill is present before you invest.

TIP: Fees are usually shown in percentages. Small percentage differences can mask how much impact fees have in actual dollar terms. Use an online calculator, or ask your provider to help you work out your potential net returns in dollars. For KiwiSaver, use Sorted’s KiwiSaver fees calculator to find out how much you’ll pay in fees over the life of your KiwiSaver investment.

Types of fees you might pay

The fees charged depend on the investment you choose. If you invest in KiwiSaver or other managed funds, there will be a fee to cover the cost of someone managing your investments on your behalf. You’d expect this to be more than if you invested directly, for example in shares or bonds. The types of fees you’re likely to pay if you invest in KiwiSaver are:

Member fee – Covers the administration of your personal KiwiSaver account. It’s usually deducted monthly.

Administration fee – Contributes to the administration of the scheme as a whole.

Supervisor or trustee fee – Pays the supervisor or trustee for overseeing all funds offered by the scheme and for holding the fund’s assets.

Management fee – Pays the fund manager who decides how each fund is invested. This fee is different for each fund as some funds need more management than others. It’s calculated as a percentage of the fund’s net assets.

Performance-based fee – a bonus paid to the fund manager for achieving a return that’s better than the target return.

Other fees may be charged if you:

  • change your investment options
  • transfer savings from another NZ KiwiSaver or superannuation scheme
  • transfer savings from an overseas superannuation scheme, or vice versa
  • withdraw money from your KiwiSaver scheme.

If you’re using a financial adviser or broker, they may also charge you a fee for their services. Find out more on our paying for advice page.

We regularly monitor KiwiSaver provider fees to make sure they seem reasonable.

ACTION: Use Sorted's KiwiSaver fees calculator to work out what fees you’re likely to be charged up to age 65, and to see how similar types of funds compare.

3 things to look out for

  1. Active funds (that aim to outperform an index), tend to be more expensive than passive funds (that track an index) because they require more investment expertise. As already mentioned, this means you need to be very comfortable the skill is present before you invest. 
  2. You may be charged a fee for leaving an investment early. For example, if you take money out of a term deposit before the end of the term, you’re likely to be charged an early termination fee, which means you’ll earn less interest on the amount withdrawn early. 
  3. It’s important to look at all fees charged by providers when comparing costs. Only looking at one type of fee can be misleading because providers set up their fees differently. As an example, some providers include their membership fee within their management fee, while others will charge them separately.

Most investments provide a product disclosure statement (PDS) explaining the fees you’ll be charged. KiwiSaver schemes and other managed funds also publish a fund update at least once a year with latest fee information.

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