The Financial Markets Authority (FMA) has issued a consultation paper on the calculation of total fees to be disclosed in KiwiSaver annual statements.
The FMA is seeking comments before providing a methodology notice and/or guidance that prescribes how total fees should be calculated.
The consultation window is tight, with submissions due by Friday 5 May 2017.
The consultation paper seeks feedback on proposals as to how total fees should be calculated when they are disclosed in annual statements provided to KiwiSaver members.The paper proposes a “total annual fund charges" methodology (TAFC methodology) for calculating total fees paid by an investor. The TAFC methodology, if adopted, would be required to be followed by providers to ensure consistency for comparison of fees.
The total fees figure for each investor is proposed to be calculated as the individual investor's average balance multiplied by actual total fund charges (as a percentage of average net asset value, for the relevant accounting period) plus the individual's action fees and other charges for the relevant period.
The TAFC methodology proposed tries to balance the requirements for providing accurate information to KiwiSaver investors with not imposing unnecessary compliance costs on KiwiSaver providers to build new systems.
The consultation paper also briefly outlines an alternative method that was considered by the FMA. The “Cent per Unit" methodology is similar to that used to calculate PIE income tax under the Income Tax Act 2007. Despite it being more accurate, the FMA was concerned with the time it would take to implement this system for KiwiSaver providers and the need to back-fill data if the method was to be adopted. For this reason, the Cent per Unit method was not favoured.
Further guidance to be given
The FMA is also considering guidance on the use of estimates when calculating total fees. The guidance to be provided in this regard is intended to look similar to the FMA's existing Fee Disclosure by Managed Funds guidance.
The FMA expects the new regulations on disclosure of total fees for KiwiSaver annual statements to become effective later this month. Following the consultation period for the latest consultation document, a draft methodology notice as to how total fees should be calculated (and/or draft guidance regarding use of estimates in the calculation) is expected in May or June, with the expected issue of a finalised notice and/or guidance in the period from June to August this year.