BNZ knew it was charging too much for KiwiSaver, but didn't cut fees for nearly a year

Friday, 2 August 2019

BNZ was late launching its KiwiSaver, and has been playing catch-up with the other big banks.

BNZ continued to charge its Kiwisaver customers millions in unnecessary fees for months after its own chief executive identified it should be cutting costs and improving performance.

The revelations of how the bank was flat-footed around reviewing its fees structure are in stark contrast to a major, long-term advertising campaign designed to show it wanted to help Kiwis be 'good with money'.

In fact, it was delivering them a Kiwisaver scheme with mediocre returns and unnecessarily high costs, to the extent that chief executive Angela Mentis recognised that it needed to do better.

Angela Mentis, BNZ's chief executive, recognised the bank's KiwiSaver scheme fees were too high in June 2018, but did not drop the fees until May this year.

Even then, it took almost a year before changes were actually made.

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In May this year the bank moved to cut its fees, including removing its $24.30 a year in monthly administration fees.

A whistleblower's leaked documents have given an insight into how banks operate behind the scenes.

In the 10 months after Mentis's statement internally, the administration charges alone on its 135,000 KiwiSaver members would have added up to around $2.7 million.

The NAB/BNZ Files show that when Mentis was interviewed by EY in June last year in preparation for a report for the Australian banking regulator, she spoke about 'a focus on cultural transformation to the new strategy', which was built around 'consumer and community expectations'.

She told EY BNZ would have to cut its KiwiSaver fees, and adopt a 'Vanguard' approach to managing its KiwiSaver scheme.

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Vanguard investment funds are passive index-linked funds which don't require active management from bankers.

The bank had been 'late into thinking about customers,' Mentis said, noting the low proportion of its customers who were in its KiwiSaver scheme.

At the end of March, the BNZ KiwiSaver scheme, which was only launched in 2013 compared to rival banks' which launched in 2006, had just 134,000 members, making it the smallest of all the banks.

Westpac had 396,000, ANZ had 562,000 while ASB had 514,000 and Kiwibank-owned Kiwi Wealth had 194,000.

'We have never overcharged members of the BNZ Kiwisaver scheme and recently relaunched the BNZ Kiwisaver scheme with a new low-fee structure,' BNZ spokesman Michael Burgess said.

'In 2018 Angie Mentis proposed that BNZ should look for better ways to offer its Kiwisaver product and improve outcomes for customers. As a result we have recently launched a low-fee product to the market.

'Making these changes takes time as the process requires the involvement of customers, government, underlying fund managers and regulators.

'As part of this process we have changed the way we invest in international asset classes to an index management style. Vanguard Investments is the underlying manager.'

But, he said: 'We retained active management for New Zealand and Australian investments as we believe it provides the best value to our members for these smaller, less-liquid markets. These changes allowed us to change our fee structure.'

When Mentis told EY fees on BNZ's KiwiSaver had to be cut, it was just two months after a law change meant all KiwiSaver providers had to quote fees in dollars and cents – not just percentages in their quarterly fund updates to investors.

There was an intense focus on KiwiSaver fees at the time, partly because two KiwiSaver providers, ASB and Simplicity, were making a big play of how active KiwiSaver managers like BNZ charged high fees but still did not outperform the markets.

High fees are a drag on fund performance, and, with the exception of Kiwibank's Kiwi Wealth, BNZ had the lowest after-fees return in the year to the end of March 2019 for its conservative, balanced and growth KiwiSaver funds.

As well as ditching the $23.40 annual scheme fee charged to all members, it also cut the fees on its conservative fund (from 0.58 per cent to 0.5 per cent a year), its balanced fund (from 1 per cent to 0.58 per cent), and its growth fund (from 1.1 per cent to 0.58 per cent).

Mentis noted in her exchange with EY that the bank was getting an increased level of proactive inquiries from regulators.

At that time the Reserve Bank and Financial Markets Authority were gathering evidence for their Conduct and Culture review into how banks treated their customers, though the review focused on bank systems, and was not an Australian Royal Commission-style a deep dive into customer stories to identify individual instances of abuse.

But, the FMA has also set its sights on value-for-money in KiwiSaver.

In July, the regulator set its priorities for the coming year, including: 'Fees and charges – ongoing work to promote transparency and improved understanding of fees and charges, and value for money.'

The FMA charts KiwiSaver funds in a free-to-access web-tool.

It showed that in the five years to the end of March 2019 the KiwiSaver growth funds of BNZ and ANZ had both returned investors an average of 7.7 per cent over each of the last five years after fees.

It showed ANZ took 12.4 per cent of returns earned by its KiwiSaver funds as fees, and BNZ took 12.2 per cent.

That was well behind ASB (average annual returns of 8.5 per cent with 7.2 per cent of all returns being eaten up by fees), and Westpac (returns of 8 per cent with 10.2 per cent of returns eaten up by fees).