Inside Money: Trustee trouble to bite Superlife on the bottom line

Superlife Trustee fails to make the FMA cut.. Photo / Supplied

As the Financial Markets Authority (FMA) deadline for trustee licensing hit last week most eyes were on the fate of Perpetual Trust , which came out of the process with a temporary reprieve.

Buried in the FMA press release, however, was the much more interesting announcement that Superlife Trustee Limited was knocked back on its application.

Superlife Trustee Limited was declined a licence because it could not satisfy FMA that, having regard to conditions that FMA may impose, it was capable of effectively performing the functions of a trustee, the FMA release says, with its former duties now farmed out to Public Trust.

(Superlife, you may recall, was rapped over the knuckles by the FMA last year for irregular KiwiSaver sales practices.)

As Superlife Trustee was only responsible for looking after the Superlife superannuation and KiwiSaver schemes, the effect of its shut-down will not be as widespread as Perpetual Trust's transition, which has a wider range of clients some of whom may move across to the newly-formed Foundation Corporate Trust that arose out of Perpetual Trust's ashes.

The failure of Superlife Trustee to make the FMA cut, though, highlights the extra costs the new trustee regime may impose. While Superlife Trustee claims its directors are independent of the management companies, as a wholly-owned subsidiary of Superlife, trustee costs would have remained in-house.

Under the new arrangements Superlife will have to pay a fee to an outsider, Public Trust, for the trustee services, which will come straight off the bottom line. Superlife manages about $200 million in its KiwiSaver scheme and a further $900 million or so in its superannuation product.

As a point of comparison, Grosvenor, which has a similar-sized KiwiSaver scheme to Superlife's, shelled out about $66,000 in trustee fees in the 12 months to March this year roughly 0.03 per cent of funds under management. Applying the same metric to Superlife's $1.1 billion, trustee fees would hit over $300,000 each year.

These are speculative numbers, of course, but they are indicative of the potential extra costs imposed by the new requirement for all KiwiSaver schemes to have an independent corporate trustee.

And it explains why some KiwiSaver schemes baulked at handing out basis points to trustees for activities they formerly managed on a more fixed cost basis.

It is understood some schemes may be reclassified as 'restricted', rather than open to the wider public, and so avoid the external trustee costs.