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How Booster’s new fee structure is changing KiwiSaver

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Booster has recently announced changes to its fee structure starting October 1st, 2021. This new structure will be based on tiering the fees so that the more money you have in your KiwiSaver account, the lower the fee becomes. We answer how this will affect your KiwiSaver account growth in the future, and what it means for Investors and their managed funds.

How the prior fees worked for the Booster’s funds

Originally, Booster and most other KiwiSaver providers have estimated percentage rates for their annual management fees. This has been in common use since the start of KiwiSaver's implementation. 

Booster’s fees  include a fixed member fee of $3/month ($36 per year). As well as this membership fee, there are annual management fees. These management fees differ between funds and tend to be larger for higher volatility funds ( inc. Conservative, Balanced, Growth).

Prices range based on how they are managed. Booster’s original Socially Responsible Investment fund had three different sets of fees depending on how the fund was managed. The Socially Responsible Investment fund has relatively higher fees as it has high volatility, as shown below:

 

Socially Responsible Moderate

Socially Responsible Balanced

Socially Responsible Growth

Annual Management fee (fixed)

1.07%

1.17%

1.17%

Other admin and performance based fees (estimate)

0.05%

0.09%

0.15%

Total annual fund charges (estimate)

1.12%

1.26%

1.32%

When volatility decreases, such as a Booster’s Conservative fund, we can see below how much these fees change compared to funds such as the Socially Responsible Investment fund:

 

 

Default Saver 

Enhanced Cash 

Capital Guaranteed 

Moderate

Annual Management fee (fixed)

0.38%

0.82%

0.91%

1.07%

Other admin and performance-based fees (estimate)

-

-

-

0.04%

Total annual fund charges (estimate)

0.38%

0.82%

0.91%

1.11%

Booster’s fee structures shows how investors with higher balances pay more to keep their funds managed in total. This subsidizes and supports clients that have less managed funds allowing them to grow faster as they start their KiwiSaver journey. This is why we see fees of 0.38% up to 1.32% depending on how volatile the funds are.

The structure for these fees are what you would expect to see for your funds from professionally managed KiwiSaver providers.

How does the Booster’s new Fee tiering structure work?

Going forward, Booster's new fee tiering structure will change from how the original fee structure weights Investors. As we saw with the initial fees, investors with larger balances were charged the same rates as investors with smaller balances. This meant no changes to the rate at which you paid. 

For Booster's new structure, there are progressive drops in the fees you pay as your KiwiSaver balance increases. This gives some incentive for investors to hold onto their KiwiSaver long-term. But for those with lower balances, this may mean higher fees relative to other providers. This will cause slower growth in returns initially.

This new structure will be available to advisors on the 1st of October, and in trail payments till 31st of October.

(Example of how this might look for clients using Booster’s management fee - scale)

Balance

Fee

Change

Under $200,000

1.24%

0

$300,000 

0.94%

-0.30%

$500,000 

0.74%

-0.20%

$1,000,000 

0.64%

-0.10%

$2,000,000 

0.42%

-0.22%

 

 

 

 

 

The table above shows how investors with higher balances will be paying ⅓ of the amount of management fees compared to other tiers. Compared to other providers, the first tier would be considered high, while higher balances would be paying relatively lower fees. Is this a good choice for investors going forward?

You can see how it compares with other providers or view a list of the best KiwiSaver funds here.

Summary:

  • Booster’s new fee structure is tiered with lower fees for higher balances
  • It applies to all new and existing clients
  • Begins October 1st, 2021
  • Favours Investors with high balances
How does the new structure compare to the old?

Let’s say there are 2 KiwiSaver accounts that both start with $5,000 in their balance. One uses the original fee structure that most KiwiSaver providers use, while another uses Booster’s new tiered structure.

Let's say that you are a new KiwiSaver investor and have started with $5,000 towards your account. Each year after, you contribute $10,000 for the next 50 years. Your funds provide a return of 8% p.a. 

Each year, these 2 accounts receive the same return, but the original fund charges a fixed management fee of 0.95% each year. On the other hand, Booster’s new tiered fee scales with your balance. (Example Fee Charges Below)

Balance

Fee

Change

Under $200,000

1.24%

0

$300,000 

0.94%

-0.30%

$500,000 

0.74%

-0.20%

$1,000,000 

0.64%

-0.10%

$2,000,000 

0.42%

-0.22%

 

 

 

 

 

What would happen at the end of the 50 years, and how much fees would go towards the provider?

Comparing the two structures, we can see for the first 25 years, the original fixed management fees would be the best option for KiwiSaver investors for returns. However, after the 25th year when the balance becomes larger, this leads to paying substantial fees for providers to manage the KiwiSaver account.

This graph shows how original fees paid tend to show better results early on, compared to the tier structure that Booster is implementing. But after this period, Booster’s tiered structure will start to bring more benefits towards those who have stayed on to this point. 

Annual Fees Charged: (Fixed vs Tiered)

The following chart shows how much you would need to pay in management fees each year. As we expect of the original fixed rate, we see an exponential connection between the balance and fees paid. Even with a fee of 0.95% per year, this shows how much you may end up paying to keep the funds managed.

On the other hand, Booster’s tier structure provides some cushioning towards the fees paid after different tiers are hit. This can be shown clearly after a balance of $2,000,000. In the final year of this example, the annual fee charges are nearly $41,000 and $20,000, respectively. This shows how much you, as a KiwiSaver investor, would save compared to the original fee structure.

What this means for KiwiSaver investors.

Moving forward, we may begin to see more Investors moving towards this kind of structure if they have long-term KiwiSaver account goals. This may be from moving from one provider to another or as someone beginning their KiwiSaver journey.

For Booster’s users, this may mean you will see a rise or fall in the fees you are charged annually. Clients with smaller balances will be subsidising for the offset from the lower fee charges that other investors pay as well. But as their balances increase, these same investors will begin to see the benefits to their KiwiSaver returns.

How this will impact Booster and other providers going forward.

Although it may seem like Booster will be losing out on some management fees because of the tiered structure, they say this won’t be the case. The fees that would have been originally charged from the higher balanced account will now come from investors with the higher fee tiers with lower balances. This means that they will be making essentially the same amount as before the change.

Depending on the success of how the trial period goes, we may begin to see changes across the board for KiwiSaver providers or changes to their fees in general. Booster’s innovation towards tiered structure will allow KiwiSaver investors to save more towards their retirement if they have a long-term goal.

If you think this sounds like an option for you, talk to your financial advisor to see how this may affect you and your goals.

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