Up until recently, we have been a bit limited to where we can invest our KiwiSaver money, especially if you believe in low cost index funds as I do. Simplicity and Superlife are the two main ones for most seeking low cost, passive investments. Simplicity tends to be lowest cost, albeit with a limited range of funds. Superlife slightly higher cost, but a far greater selection of funds to choose from.

Recently, InvestNow joined the KiwiSaver fray offering even more competition for low cost KiwiSaver investments, in much the same manner as Superlife. With InvestNow you can select what funds you want to invest in and at what percentages. It is customised to your needs.

Before we get into the interview with Mike Heath, General Manager of InvestNow, I’d just like to state that this is not a paid ad. I am not receiving any payments for this article, before someone accuses me of conflict. I am just a fan of low cost investing and am excited by the introduction of a new provider and thought the information could help.

Nick - Why did you decide to introduce KiwiSaver to your offering?

Mike - It simply came down to timing. KiwiSaver is a really exciting, fast growth market, which we think is ideally suited for the InvestNow KiwiSaver Scheme offering. As Kiwi’s balances grow they are starting to take a greater interest in them. And going into the KiwiSaver market is a natural step, and builds on our success to date in providing 30,000 investors with access to managed funds, ETFs, and 6 different banks’ term deposits on one platform.

We think that people are looking for greater flexibility and control over their KiwiSaver accounts, which are on track to become the largest financial asset for most people outside the family home. We designed the InvestNow Scheme to reflect growing member demand for wider choice in how and where their KiwiSaver assets are invested.

In a market where people can only join one KiwiSaver scheme at a time, we think there is a great place for our scheme which enables people to access a wide range of managers’ funds and solutions on one platform. We think in future the most successful KiwiSaver schemes will be the ones that provide a combination of great service, access to leading funds, coupled with competitive fees. This is exactly what InvestNow is striving to offer our customers.

Nick - Why the initial selection of 28 funds?

Mike - The InvestNow KiwiSaver scheme provides members with access to 28 funds from nine leading investment managers including Milford, Mint, AMP Capital and Harbour.

The range of funds includes easy-select diversified funds (conservative, balanced & growth), passive/index funds, active funds, and funds managed on a socially responsible basis.

Nick - What are the fees?

Mike - Competitive! InvestNow addresses the increasing focus on KiwiSaver fees from the Financial Markets Authority (FMA) and investors with a range of transparent, cost-effective funds across passive and active investment styles.

Unlike most other KiwiSaver schemes, InvestNow does not charge any fixed dollar annual ‘member fee’ or other administration charges, which compounds to a significant benefit to investors as their retirement nest egg grows faster over time.

Investors simply pay the management fees associated with the funds they select, whether these are index funds, active funds, or low cost diversified funds like the Hunter Balanced and Growth Funds which have fees of just 0.37% per annum.

Nick - What are the standout features of your KiwiSaver offering?

Mike - We have made 4 index funds available covering the core asset classes, ensuring investors can tailor their own diversified index fund portfolios. This includes blending these index funds with any blend of the active and socially responsible funds that are also available. The low annual management fees of each of these index funds, coupled with InvestNow not having an annual or monthly administration fee, ensures that these are the lowest cost index funds available in the KiwiSaver market today.

In addition to these sector index funds, we have also have the easy-select low cost diversified Hunter Growth and Balanced Funds available. With annual management fees of just 0.37% per annum, and no annual administration fee, these are the lowest cost diversified funds available within any KiwiSaver scheme today (based on someone having a KiwiSaver balance of $20,474, which is the average member balance across the country. Source: FMA – KiwiSaver Annual Report 2020, Average Member Balance). Hunter was in the media recently highlighting the importance of tax efficiency, which is why they decided not to use Vanguard’s Australian unit trusts that groups like Simplicity use.

We have a great range of active funds available. The InvestNow KiwiSaver scheme opens up for the first time direct member access to highly respected local fund managers such as Harbour and Mint. The Milford KiwiSaver Active Growth Fund has been hugely popular with KiwiSaver investors with over $1.7 billion of assets, so we naturally think that there will be equal demand for the Mint Diversified Growth Fund, reflecting that it has been an outstanding performer in this sector.

It is great to be able to provide KiwiSaver investors with access to these awesome managers who have been unavailable until now.

Nick - Do you have plans in the future to add to your offering?

Mike - Absolutely. We are already working with managers on a range of new fund opportunities, including more balanced and growth funds. We also want to add more low cost indexed funds, and active funds. We are looking at the funds that have been really popular on InvestNow to date, and making sure we have them available.

Since launching the InvestNow KiwiSaver Scheme, one question that we have been asked is why we haven’t immediately made the hugely popular Vanguard funds available as part of the InvestNow KiwiSaver Scheme. The key reason for this is the tax costs (being “tax slippage”) associated with putting these Australian unit trusts in to a KiwiSaver scheme wrapper.

To explain this, if we look at the AMP Capital All Countries Global Index Fund (which is available on the InvestNow KiwiSaver Scheme) is a PIE fund which provides investors with exposure to world sharemarkets by investing directly in the individual underlying shares. This ensures that KiwiSaver investors can get a tax credit for the 15% non-resident withholding tax that is deducted on the dividends paid by all the underlying companies.

In contrast, if we made the Vanguard Australian unit trusts available as part of the InvestNow KiwiSaver Scheme, then investors would be unable to get any credit for this same underlying non-resident withholding tax. Given that yield on the MSCI World Index is currently 2% (as at 30 September 2020), this tax slippage equates to 0.30% per annum (being 15% multiplied by 2%). This tax slippage cost is not exactly the same as paying more in fees, reflecting that fees are tax deductible, whereas the tax slippage isn’t. For an investor with a 28% PIR, 0.30% per annum in tax slippage is like paying 0.41% per annum more in fees.

In simple mathematical terms if we add the management fee of the Vanguard Australian unit trust (0.20% per annum) to the gross tax slippage from the non-resident withholding tax (0.41% per annum), the true costs (of 0.61%) is already significantly greater than the actual fee within the tax efficient AMP Capital All Countries Global Index Fund of 0.40% per annum.

Note that in time we will provide access to more index funds, including ETFs – as well as more diversified funds, active funds, and socially responsible funds. We have some great ideas for investment funds that will offer InvestNow KiwiSaver Scheme members with an awesome combination of low cost index funds, taking into account the costs relating to any tax inefficiencies.

We are really keen to hear from investors what they want to access. If anyone has strong ideas about what they would like us to include as part of the InvestNow KiwiSaver Scheme, they should reach out to us.

Thanks for your time Mike.

You can view their full range of KiwiSaver funds here.

As always, do your research ,weigh up the alternative options, ask questions and invest according to your goals, timeframe and tolerance for risk.