Page last updated: 23 September 2021

Managed investment scheme manager

Managed Investment Schemes

GUIDANCE

Managed fund fees and value for money

Guidance and principles to help managers and supervisors of KiwiSaver schemes and other managed investment schemes to demonstrate how they are meeting their existing obligations, statutory duties, and conduct expectations in respect of fees and value for money.

 

View the guidance

Licensing declarations and certificates

For applicants

SD1.0  Certificate of compliance and authority to apply (applicant or their authorised person)

SD1.1  Declaration by current/proposed director of licence applicant

SD1.2  Declaration by current/proposed senior manager of licence applicant

SD1.3  Curriculum vitae of management team member of licence applicant

SD1.4  Declaration  by Independent trustee (individual) -  a combined certificate and declaration

For related bodies of the applicant

SD2.1  Declaration by executive director of related body to licence applicant

SD2.2  Declaration by senior manager of related body to licence applicant

For relevant parties to the applicant

SD3.1  Declaration by director of relevant party to licence applicant

SD3.2  Declaration by senior manager of relevant party to licence applicant

SD3.3  Declaration by individual relevant party to licence applicant (such as owner)

Licensing information for specific roles

Property and forestry investment schemes licensing

Businesses providing property investment schemes or property syndication funds, or forestry managed investment schemes, also need to get their licence application in as soon as possible.

This licensing guide for MIS managers of forestry schemes supplements Part B of our licensing application guides. It explains to businesses providing an MIS service of a forestry scheme on how to approach their licence application under the FMC Act. 

Download the Licensing guide for MIS managers of forestry schemes PDF.

We have granted some compliance obligations exemptions as below:

Single person self-managed superannuation scheme licensing

Application for approval of a single person self-managed superannuation scheme as a Schedule 3 approved scheme should be lodged to [email protected] 

  • Please include in the subject line of your email “Application for Schedule 3 Scheme Approval” 
  • The application needs to include a pdf copy of the executed trust deed which needs to comply with the requirements specified in FMC Act and Regulations. 
  • The application needs to include the address for service for future correspondence from FMA and the balance date for the scheme.

The sole member of the scheme must be one of the trustees of the scheme or if the scheme has a sole corporate trustee one of the Directors of the corporate trustee. The fee payable with the application is currently $178.25 including GST and will be billed to the applicant.

Ongoing obligations once approved are:

  • an annual report the content of which is covered in the FMC Regulations
  • a set of unaudited accounts which comply with GAAP. 

The accounts must be completed within 5 months of the balance date and a copy of the annual report and unaudited accounts must be lodged to FMA [email protected] within 28 days of completion. Currently, there is no fee for the lodgement of the annual report and accounts.

Any questions regarding the trust deed content, application process or ongoing obligation can be made to [email protected]

KiwiSaver Schemes

All managers of new KiwiSaver schemes must be licensed as a MIS manager.

In addition if you are intending to launch a new KiwiSaver, superannuation, or workplace savings scheme you will need a certificate from the FMA before applying to register the scheme. See our information sheet on the FMA certification process for registration of new KiwiSaver, superannuation and workplace savings schemes to find out how to get started.

Some KiwiSaver managers are appointed by the Government as default scheme providers. This is a process administered by the Ministry of Business, Innovation and Employment at fixed periods. MBIE is likely to begin consulting on the next default KiwiSaver provider arrangements in 2026 / 2027.

DIMS

A discretionary investment management service (DIMS), insurance contract, or a scheme that only involves managing separate and direct interests in underlying property are not considered to be a MIS and would need a separate licence to provide DIMS. Read more about DIMS.

Levies 

The Financial Markets Authority (Levies) Regulations 2012 (the Regulations), as amended in 2020, set out the levies payable by industry. The levies are set by the Ministry of Business, Innovation, and Employment (MBIE).

The FMA receives funding from the Crown and a proportion of our costs is recouped from industry through levies.

  • A levy must be paid for every levy class the financial markets participant falls within. Levies are payable on the relevant leviable event as described in column 3 of Schedule 2 in the Regulations.
  • Some levy classes have been split in order to recognise the variations in size and nature of different financial market participants.
  • Most levies are paid when making an annual confirmation to the Registrar of Financial Service Providers (the Registrar).
  • Most levies are payable to the Registrar, via the (FSPR). However, some levies are payable directly to the FMA. This is set out in column 4 of Schedule 2 in the Regulations.
  • The following levy classes are invoiced directly by the FMA:
  • Levy Class 8, Levy Class 8A, Levy Class 10, Levy Class 10A and Levy Class 13.

The table below (see levy class description) provides a high-level description of each levy class. For the full description of levy classes, see Schedule 2 in the Regulations. 

Levy Class description

The table below provides a high-level description of each levy class. For the full description of levy classes, see Schedule 2 in the Regulations. 

Class Description
1 Persons making an application for registration on the   Financial Service Providers Register
2 Registered banks and licensed non-bank deposit takers
3 Licensed insurers
4 Licensed supervisors of debt securities and managed   investment products in registered schemes
5 Managers (of registered schemes)
6 Persons who undertook trading activities on licensed markets, contributory mortgage brokers, trading financial products or foreign exchange on behalf of other persons (other than persons included in class 6A, 6B, 6C or 6D, authorised bodies that only provide the service under a market services licence held by a person in class 6A or 6D and DIMS wholesale providers) or licensed derivatives issuers
6A Licensed discretionary investment management service (DIMS) retail providers
6B Providers of a regulated client money or property service (as defined in section 6(1) of the FMC Act) other than persons included in class 6(a) or 6C
6C Custodians and persons providing custodial   services
6D Crowdfunding service providers and peer-to-peer lending   service providers
6E Licensed financial benchmark administrators
6F Authorised bodies
6G Financial advisers
6H Licensed financial advice providers
7 All other financial service providers that are not included in any of classes 2 – 6H
8 Listed issuers (other than persons included in class 8A)
8A Small listed issuers
9 Lodgement of a product disclosure statement (PDS)
10 Licensed market operators
10A Licensed market operators that operate growth markets (other than persons included in class 10)
11 FMC reporting entities that lodge financial statements (or   group financial statements) and auditor’s reports
12 Accredited bodies
13 Licensed overseas auditors
14 Persons that apply for registration or incorporation under the Building Societies Act 1965; the Companies Act 1993; the Friendly   Societies and Credit Unions Act 1982; or the Limited Partnerships Act 2008
15 Persons that are registered or incorporated and required   to make annual returns under the Building Societies Act 1965; the Companies   Act 1993; the Friendly Societies and Credit Unions Act 1982; or the Limited   Partnerships Act 2008

Offences

It is the responsibility of each financial service provider to ensure they are registered for the service(s) they provide and have paid the appropriate levies. As part of their online annual confirmation to the Registrar, they must select all of the applicable classes to determine the levies payable and confirm the information they have provided is true, correct and complete.

Under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (the FSP Act) it is an offence to:

  • provide services you are not registered for or state you are registered for a particular financial service when you are not
  • make a representation relating to any document or information required by the FSP Act or its regulations knowing that it is false or misleading, or omit any matter knowing such omission is false or misleading.

These offences could result in a fine of up to $100,000 and/or imprisonment for individuals, and a fine of up to $300,000 for businesses.

It is also an offence under the FSP Act to fail to notify the Registrar if any of the details contained on the FSPR are no longer correct. Failure to notify could result in a fine of up to $10,000.

Levy waivers

We have discretionary power to waive a levy (in whole or part).

We will only do so if we are satisfied that the circumstances or characteristics of the financial markets participant are exceptional when compared with the circumstances or characteristics of others in the same class, so that it would make it inequitable for the person to pay the levy. The threshold is deliberately high.

The waiver power is not intended to be used to revisit settled policy positions.

Once we receive a waiver application and the fee, we will assess it.  If we decide to grant the waiver, we must notify our decision in the Gazette, and publish the decision and reasons for it on our website.

How to apply for a levy to be waived

You will need to email the following information to [email protected] with the subject line ‘Levy waiver application’.

  • Name of person or entity applying for the waiver.
  • Contact person for correspondence concerning the application including address, phone number and email.
  • Indicate the persons/entity who will receive the benefit of any waiver granted.
  • Specify which class(es) you seek a waiver from and whether a waiver is sought from the full levy or part and the amount thereof.
  • Let us know your preferred date for any waiver to take effect.
  • Explain why the waiver should be granted and why your circumstances are exceptional when compared with others in the same class.
  • Provide all relevant facts in support of your application.
  • Explain any regulatory benefit of FMA granting the waiver.
  • Give details of any previous contact with officials (including their names) at FMA or MBIE (including the Companies Office) on the matter.

How to pay your waiver application fee

You can pay by electronic deposit or internet banking. Payment can be made by applicants or law firms making applications on behalf of their clients.

The person paying the application fee must be the person who pays the subsequent fees and costs. For example, if a law firm pays the application fee, that law firm must also pay any additional fees and costs.

We recommend if law firms apply for waivers on behalf of their clients, the parties discuss and agree who will be responsible for paying the FMA’s fees before submitting a waiver application.

Payment option How to pay Additional information
Electronic deposit or internet banking Where bill pay is available please select ‘Financial Markets Authority - Other'
Otherwise, our bank details are:
Bank: Westpac
Account name: Financial Markets Authority
Account number: 03-0584-0198005-000
To ensure we process your payment correctly please provide the following information:
Particulars: Payer’s name*
Code: Waiver
Reference: Applicant’s name
You do not need to forward a hard copy of your application if paying electronically

* This is the name of the person paying the application fee. This person will be invoiced for any subsequent fees and costs. Payment by credit card is not available for this application process.

What are the fees

  • A payment of $1,265 should accompany each application.
  • This covers the application fee of $115 set out in the Financial Markets Authority (Fees) Regulations 2011 and an advance of $1,150 (including GST) for fees and costs to be incurred.
  • These regulations set out charging rates of $230 (including GST) per hour for time spent by FMA Board members and $178.25 (including GST) per hour for time spent by FMA staff.
  • These regulations are set by MBIE.

How long does it take

  • Once we have been provided with all relevant information, it generally takes around six weeks to process an application.
  • This may be longer if any policy questions arise.
  • If your application is urgent, please provide the date you need the decision by.
  • You must also provide reasons for requesting urgent consideration.

Granted waivers

Licensees have a number of obligations, in addition to the minimum standards and standard conditions set out in their licence.

Changes to directors or senior managers

Changes to directors or senior managers of a licensee and/or key personnel of an authorised body

This notification form must be completed and emailed to [email protected].

Download Notification of change of director or senior manager by licensee and/or key personnel of authorised body PDF.
(Refer Financial Markets Conduct Regulations 2014 r 191)

To notify us of a change to your key people and managers as required by the licensing standard conditions, please send an email to outlining what the changes are and the qualifications and experience of the new or replacing personnel, e.g. attach their c.v.

Overall obligations

The FMC Act includes an accountability framework that imposes statutory duties of care on supervisors and on managers of MIS. Managers of MIS must act in the best interests of investors. These general good conduct duties set the tone for the overall accountability framework and apply in addition to the more specific duties for particular circumstances. Ensuring that managers and supervisors have a clear understanding of their respective roles, and holding them to account, is central to building investor trust. Key components include:

  • requirements and obligations for licensed supervisors and managers of managed investment schemes, as well as trustees of restricted schemes.
  • requirements for schemes to be registered and custody obligations for registered schemes.
  • licence requirements for managers. 
  • requirements for restricted schemes to have a Licensed Independent Trustee. 
  • powers of intervention for supervisors and the FMA, as well as ongoing register and record-keeping duties for issuers of all regulated products.

Part 4 of the FMC Act has a governance and accountability framework. This framework applies to managed investment scheme (MIS) managers, restricted schemes and their respective supervisors or trustees.

Our Governance guidance describes how the overarching duties of care, acting in the best interests of clients, and fair dealing set the scene for how MIS managers and their supervisors must interact with each other and with the FMA and addresses the need for governing documents to be effective and fit for purpose. Guidance note: Governance under Part 4 of the FMC Act.

Licensees are now able to submit their regulatory returns online at services.fma.govt.nz.

Ongoing obligations

As a licensed MIS manager you'll have other ongoing obligations. For example, you must:

  • register your scheme before you make a regulated offer, and keep the registration up-to-date
  • ensure scheme property is held by the supervisor or another independent custodian and is held on trust
  • carry out functions in keeping with the governing document, SIPO, your issuer and market services licensee obligations
  • correct material pricing errors or non-compliance with MIS pricing methodology, report these to your supervisor, and take any other steps, including compensation, as required
  • monitor your compliance, identify material changes of circumstance, and meet reporting obligations

See also: Standard Conditions for managed investment scheme manager licences PDF.

KiwiSaver Scheme manager obligations

MIS managers of KiwiSaver schemes have additional obligations set out in the KiwiSaver Act 2006. In summary, these obligations include the need to:

See more about these obligations in the sections below and in our useful resources section which contains some specific guidance.

Annual MIS manager regulatory return

All licensed MIS managers are required to complete and submit an annual regulatory return. The return is a series of questions about your business and how your licensed service is used.

The initial reportable period will be 1 July 2021 to 30 June 2022. Completed returns will be due by 30 September 2022. We will notify all licensees when it is time to complete and submit the first regulatory return.

In subsequent years, licensees will be required to complete an annual regulatory return for the 12-month period ending 30 June and submit it to the FMA by 30 September of that year.

The information you provide us through the annual return helps us to:

  • better understand your business and the services you offer
  • ensure the information we have on your business is current
  • focus our monitoring activities more effectively.

 

Licensees are now able to submit their regulatory returns online at services.fma.govt.nz.

Download the MIS manager regulatory return template to familiarise yourself with the questions that will be asked.

Fair dealing obligations

The FMC Act sets out minimum compliance standards of behaviour for people operating in the financial markets.

It prohibits:

  • misleading or deceptive conduct
  • false or misleading representations
  • unsubstantiated representations
  • offers of financial products in the course of unsolicited meetings.

AML/CFT obligations

The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act) imposes several obligations: 

  • You must provide a written risk assessment of the money laundering and financing of terrorism activity you could expect in the course of running your business.
  • You are required to implement an anti-money laundering and countering financing of terrorism programme that includes procedures to detect, deter, manage and mitigate money laundering and the financing of terrorism.
  • You are required to appoint a compliance officer to administer and maintain your programme.
  • You are required to perform due diligence processes on your customers. This includes customer identification and verification of identity.
  • You are required to report suspicious transactions. 

Notifying the FMA

You must notify the FMA of certain events and provide us with information. All notifications should be emailed to the FMA at [email protected], noting the relevant obligation in the subject line of your email. You can notify us when a new director or senior manager is appointed by completing a notification form.

Statements of Investment Performance and Objectives (SIPO)

A statement of investment policy and objectives (SIPO) is a document that sets out the investment governance and management framework, philosophy, strategies and objectives of a managed investment scheme and its investment funds or portfolios. Under the FMC Act, all MIS managers must ensure there is a SIPO for each MIS they manage. Except in prescribed circumstances, you must also register the SIPO with the Registrar, and must lodge any changes to the SIPO with the Registrar. Our SIPO guidance note provides further detail. Download SIPO guidance note PDF.

SIPO limit break reporting

Download limit break information sheet PDF.

Our information sheet on limit break reporting outlines the reporting obligations of a MIS manager if there has been a SIPO limit break. In addition, please note the following points:

Reporting requirements are the same for any limit break type

There is no difference between the reporting requirements for an active limit break (i.e. caused by investment decisions, whether intentionally or unintentionally) and a passive limit break (i.e. caused by market movements); or a limit break occurring in normal markets or stressed markets.

Reporting should be made in accordance with regulation 96 of the FMC Regulations.  Through this report, the MIS manager, among other things, explains the cause of the material limit break and what the MIS manager will do to prevent or minimise the risk of that type of limit break occurring again. We also expect MIS managers to work together with supervisors to have a common understanding of the MIS manager’s systems, processes, and controls to detect, report, and correct limit breaks.

Focus on remedying limit breaks for the right reason

We expect MIS managers to promptly make an active decision about how to remedy any limit break. We do not consider that a material limit break should be corrected within the 5 working day period for the primary purpose of avoiding immediate reporting of a material limit break.

This decision should include reporting any material limit break that remains unremedied at the end of the 5 day working period. You may have valid reasons for not having remedied a material limit break within that period, for example, extreme market volatility, but after 5 working days, the supervisor must be engaged by making the immediate report. We would also expect you to have a plan to remedy the break that you can explain to your supervisor and that you would have engaged early on developing this plan.

Treating limit breaks in underlying funds

For MIS managers exposed to other funds indirectly, in a situation where there is a limit break in an underlying fund, you should seek appropriate information to make an informed assessment of the situation.

Changing SIPO limits

SIPO limits should not be changed for the primary purposes of avoiding limit break reporting, but there may be appropriate reasons to consider SIPO limit changes. It is generally not appropriate to change SIPO limits solely to reduce the likelihood of limit breaks occurring under volatile market conditions. Limits should be appropriate and aligned with your investment strategy.

If a SIPO changes materially you should provide sufficient notice to current investors to allow them to make an informed decision as to whether the scheme or a fund is still suitable for them. You should also review any investor disclosure including their Product Disclosure Statement (PDS) to ensure that an investor is provided with clear, concise, and effective information regarding the fund/scheme, and that information is consistent across the SIPO, PDS and other disclosure.

Fund updates

Managed funds (including KiwiSaver funds) are required to prepare and lodge fund updates.

MIS managers must make a fund update publicly available within 20 working days after the last day of each quarter of each disclosure year.

If the managed fund is a restricted scheme or closed scheme, or the managed fund has a closed section, fund updates must be publicly available within 3 months after the last day of each disclosure year, or the balance date of the scheme in each year.

Details can be found in the FMC Regulations as follows:

The following guidance clarifies sections not made explicit in the regulations.

Annual return graph

We prefer the graph to show the disclosure years in ascending order e.g, 2017, 2018, 2019, 2020, 2021.

The axis label for the last bar that shows average annual return is not prescribed, but it’s important it is clear for scheme participants so they can understand the values in the graph. You can label it ‘Average annual return’ as this is commonly used and is consistent with the statement that must be included below the bar graph - see subclause 62(4) of Schedule 4 to the FMC Regulations.

Fees table – individual action fees

If individual action fees are not charged by the fund, we prefer the statement required by subclause 65(2) of Schedule 4 to the FMC Regulations to be modified so it clearly states scheme participants are not charged individual action fees for specific actions or decisions - see regulation 59 of the FMC Regulations.

Example of how this applies to an investor

We prefer you to use the annual return after deductions for charges but before tax for the value at the end of the second sentence of the statement, ‘At the end of the year, [name] received a return/incurred a loss after fund charges were deducted of $[specify]’. Consider using footnotes to help clarify your example.

The worked example in the fund update is intended to provide information at a general level only. It must be calculated based on the fund’s actual total fund charges. The example cannot be modified to take into account rebates which are only available to some scheme participants.

However, the fund update may include additional information about the effect individual discounts or rebates may have when the MIS manager genuinely believes such information is necessary to clarify the worked example. In deciding whether further information is required, you should consider whether the rebates are available to all scheme participants if so, the extent it will affect the worked example.

References: Schedule 4, clause 66 and regulation 59 of the FMC Regulations.

Currency hedging

You are required to include a statement about the extent of currency hedging for the specified fund if that information is material - see subclause 71(3) of Schedule 4 to the FMC Regulations. Therefore, you will need to consider each fund’s particular characteristics and determine whether currency hedging information is material and if a statement is required. As an example, it may be material to state that the fund does not hedge currency if it invests into international equities.

A statement about currency hedging should come after the ‘Top 10 investments’ subheading. However, you can place this statement under the target investment mix if you think it’s more appropriate.

Top 10 investments

The net asset value of the fund is the value of the fund’s assets less liabilities. The 10 highest-value individual assets as a percentage of net asset value may exceed 100% where, for example:

  • a fund has less than 10 assets (ie all its assets are in the top 10 investments list) and some liabilities, or
  • a fund has significant liabilities (eg, as a result of foreign exchange hedging).

The list of top 10 investments should not include assets that a fund has taken a short position on. Fund updates are required to list the 10 highest-value individual assets of the specified fund at the date of publishing. As individual assets must be directly held by the fund, taking a short position on an asset means the fund does not hold the asset so should not be included.

Correcting previous fund updates

If you discover a mistake in a fund update that has already been uploaded to the Disclose register you should only re-submit the fund update as soon as practicable if the mistake is materially adverse from the point of view of the scheme participant - see regulation 61 of the FMC Regulations. If the mistake is non-material, eg, it is missing the total percentage of portfolio weighting on the top 10 investments, the changes can be corrected in the next fund update.

Categorising assets

We recognise the asset categories specified in clause 1(4) of schedule 4 could lead to some uncertainty in relation to certain fixed interest investments such as Kauri bonds. The FMA and the Ministry of Business, Innovation and Employment are currently working to clarify this issue. In the meantime, you could either categorise these bonds as ‘New Zealand fixed interest’ or ‘international fixed interest’ depending upon your assessment of the characteristics of the bonds.

Your PDS and SIPO should provide clarity around the types of assets the fund invests in. We will to assist MIS managers to take a more standardised approach to categorise fixed-income assets in the near future.

Annual reports

MIS managers must provide an annual report. Wording including the prescribed wording that must be used is set out in the FMC Regulations.

Annual reports can be sent electronically, as long as you obtain the scheme participants’ consent first. Once you have their consent you can email the annual report to them either as an attachment or as a website link or you can provide them access to a secure online platform where they can log into their account to read it.

Disclosing the number of managed investment products on issue

Under Clause 78(2) of Schedule 4 of the FMC Regulations, annual reports for schemes that are not KiwiSaver, superannuation or workplace savings schemes must disclose the number of managed investment products (MIPs) on issue at the start and at the end of the accounting period. If a scheme is non-unitised and therefore the number of MIPs on issue cannot be easily quantified you may include additional detail in the annual report, to make the information meaningful for scheme participants. For example, where a scheme is non-unitised, it would be appropriate to also disclose:

  1. the total number of scheme participants at the start and at the end of the period; and
  2. the total value of scheme participants’ accumulations, and the number of scheme participants that relates to, at the start and at the end of the period.

Similarly, where a scheme is unitised, disclosing in the annual report the number of MIPs (as required by Clause 78(2)) without also disclosing their value is unlikely to provide meaningful information for scheme participants. Therefore, it would be appropriate to also disclose the value of those MIPs.

Using prescribed wording on KiwiSaver annual reports

For clarity, supervisors should ensure that KiwiSaver scheme managers use the wording required for statements as specified in the FMC Regulations.

In some cases providers of KiwiSaver schemes have substituted their own wording in schemes' annual reports for the statements required under the FMC Regulations. As a result, the meaning of some statements and certifications has changed, requiring the regulator to seek clarification and replacement statements in some situations.

Setting fees

Scheme fees must be disclosed in product disclosure statements and fund updates according to prescribed criteria.

Our guidance note ‘sets out our expectations about how managers, with assistance from their supervisors, should take a disciplined approach to considering and being transparent about the fees they charge and why, and what value their members receive in return.

The guidance applies to both MIS managers and KiwiSaver managers. There is an additional requirement for KiwiSaver managers to notify the FMA of all fee increases.

In addition, our KiwiSaver performance fee guidance note also applies to both MIS and KiwiSaver managers.

MIS manager’s basic fee

The MIS manager’s basic fee is a subset of overall management and administrative charges. It refers to the fees charged by the MIS manager for their services.

In this respect, it distinguishes the management and administrative charges which originate from the MIS manager from those which have been passed onto for services provided by other parties (underlying funds, auditors, supervisors etc).

We note that in some instances, third parties’ services are charged to the MIS manager. The MIS manager then charges these fees to the scheme. These third-party service charges should not be classified as the MIS manager’s basic fee.

References: Schedule 4, clause 1 and 63 of the FMC Regulations.

Buy/sell spreads 

It is appropriate for trading expenses incurred, when implementing the investment strategy of a fund, to be borne by all scheme participants. However, material costs driven by investors transacting in fund MIPs should generally be borne by those transacting investors as a group over a particular period.

Buy/sell spreads on entry and exit to the fund can be an appropriate tool to help best to achieve this. The fundamental principle in considering the use of buy/sell spreads or any similar tool is fair treatment of investors. 

Other tools that can properly allocate those costs include swing pricing and anti-dilution levies.

When necessary, MIS managers should work with their Supervisor to determine the tool most likely to ensure fair treatment of investors.

Buy/sell spreads can also be appropriate for some KiwiSaver schemes

When considering if and when buy/sell spreads are suitable for their funds, KiwiSaver scheme managers should take into account likely fund inflows and outflows under different scenarios. KiwiSaver scheme managers should also be particularly diligent in avoiding making the scheme unnecessarily complex.

Buy/sell spreads can be a permanent feature or limited to material impacts

If buy/sell spreads are implemented, they could be a permanent feature of the fund, or they could be limited to times when the impact of trading expenses incurred due to scheme participant transactions is material to fund returns. Regardless of the approach, as noted below they must be actively managed to ensure they result in the fair treatment of scheme participants. 

MIS managers will need to weigh the benefit of implementing buy/sell spreads against other factors, including any additional complexity both operationally and in regard to scheme participant understanding. Similarly, MIS managers not using buy/sell spreads or a similar tool should consider if their use would promote fair treatment of scheme participants. Currently, not all governing documents provide for the use of buy/sell spreads or other tools such as swing pricing or anti-dilution levies. MIS managers should consider if those governing documents should be amended to allow for their use if needed. 

Depending on market conditions, costs may be skewed towards buying assets or towards selling assets. In such scenarios buy spreads and sell spreads should be separately determined to ensure they reflect trading costs incurred due to the relevant scheme participant action (buy or sell).

Since the spread is meant to allocate trading costs to the appropriate scheme participant, and to prevent ongoing scheme participants from subsidising transacting scheme participants (or vice versa), the spread should always be applied to the benefit of the and never to the benefit of the MIS manager.

The FMA will monitor the implementation and level of buy/sell spreads in conjunction with MIS Supervisors.

Buy/sell spreads must be actively managed

A liquidity management tool can only be used if allowed in, and in the manner allowed by, the scheme’s governing document. It should also be consistent with the PDS, SIPO, and any other offer documents. Supervisor approval may be required. Where Supervisor approval is not required, we recommend the Supervisor is consulted.

Fair treatment of all scheme participants requires that any buy/sell spread should be maintained at an appropriate level. This implies that the MIS manager must monitor the underlying asset spreads, and the costs of fund transactions, and must adjust the spread so that it is neither too high nor too low. If it is too low, then ongoing scheme participants are subsidising transacting scheme participants. If it is too high, then transacting scheme participants are subsidising ongoing scheme participants.

Maintaining an appropriate spread would require that the MIS manager:

  • Set a threshold that would trigger a review of the level of the spread to determine if it is aligned with underlying costs.
  • Review the level of the spread on a periodic basis to ensure the level remains appropriate in the overall context of the market.

Buy/sell spreads should be disclosed

If buy/sell spreads for issue or redemption of MIPs or interests in a fund are charged to scheme participants, then this information should be disclosed to scheme participants, including in the PDS and fund updates.

However, there is no requirement to disclose trading expenses (see cl.2(1) of schedule 4 of the FMC Regulations for the definition of trading expense) such as buy/sell spreads or brokerage fees relating to underlying fund assets as part of fund charges where they are incurred by the fund (provided they reflect only the actual cost of buying and selling investments such as brokerage fees and spreads), though they will reduce reported returns. Because of this, and the fact that spreads go to the fund rather than to the MIS manager, our view is that describing buy/sell spreads as ‘fees’ is not necessary.

While noting the ‘fees’ comment in the paragraph immediately above, we consider that it is appropriate to treat buy/sell spreads in a similar way to individual action fees for PDS and fund update disclosure purposes. In the PDS this would include disclosure in the Key Information Summary and the section titled ‘What are the fees?

Clause 37 of schedule 4 of the FMC Regulations details how individual action fees must be disclosed. As buy/sell spreads may rapidly change in stressed market conditions, our view is that the information that 37(2) would require can be fulfilled by:

  • Disclosing indicative spreads under usual conditions, noting for example that in stressed market conditions they may materially increase (consider giving an example of what they may increase to); and
  • Noting how the actual spread will be set (e.g. it will reflect the estimated trading expenses incurred by the fund in carrying out the buy/sell request); and
  • Including a link to a publicly available document with further information such as current buy/sell spreads.

MIS managers should take care to ensure that technical wording is minimised and disclosure is clear, concise and effective. In our view, even the wording ‘buy spread’ or ‘sell spread’ is quite technical and wording that describes the application and effect of the spread is more likely to be effective.

Where buy/sell spreads are mentioned, disclosure should include the fees example required by clause 38(1) of schedule 4 of the FMC Regulations, e.g.:

“[Name] invests $10,000 in the [specify fund name]. A [contribution cost] of [x] is [charged/incorporated in the price that he/she pays for her investment]. This brings the starting value of his/her investment to …”.

Any MIS manager webpage or other publicly available document linked to or referenced in the PDS that contains further information on buy/sell spreads should include the current buy and sell spreads, ideally in a table with the different buy and sell prices. This information should be disclosed in a clear, concise and effective manner.

However, if buy/sell spreads are not limited to estimated trading expenses incurred by the fund because of the buy/sell decision by a  scheme participant – i.e. they may go beyond this – then our view is that they should instead be described as a fee and the disclosure of the amount included in the PDS.

If buy/sell spreads are introduced to an existing fund, MIS managers should not only update their PDS and other disclosure, but should also consider how they will inform existing scheme participants.

Our view on buy/sell spreads limited to trading expenses

In our view, a buy/sell spread could reflect the immediate trading expenses incurred by the fund, or alternatively, the average trading expenses incurred by the fund over the short to medium term (if over that term underlying average trading expenses are relatively consistent), due to such transactions.

It is important to note that funds incur trading expenses for reasons outside of scheme participants buying or selling MIPs – for example, to rebalance or actively manage the portfolio. Such trading expenses are not relevant to scheme participant buy/sell decisions and should not be included in buy/sell spreads.

The FMA monitors whether MIS managers are complying with their obligations. We do this in conjunction, or in consultation, with supervisors of MIS, who take on the main front-line supervisory and compliance monitoring role.

KiwiSaver areas of focus

See our KiwiSaver reports for more information about monitoring.

Investments - Managers must exercise care, diligence and skill with investment of scheme assets, and act in accordance with the statement of investment policy and objectives (SIPO). Our guidance note to KiwiSaver Supervisors provides more detail.

Unit Pricing - Unit pricing errors can have adverse implications for investors. We will consider how KiwiSaver scheme supervisors monitor managers' pricing activities.

Disclosure - We will review KiwiSaver scheme offer documents in conjunction with the SIPOs to test whether investment strategies are appropriately disclosed, and disclosure documents are understandable to investors.

KiwiSaver scheme supervisors - Supervisors are crucial to the effective operation of KiwiSaver schemes. We include a focus on KiwiSaver as part of our ongoing monitoring of supervisors. We will also work to clarify our expectations of supervisors for KiwiSaver schemes.

Licensing overview report 2017

It is helpful to read the Licensing overview report alongside the guide to the FMA’s view of conduct. Together, these documents give a good indication of our areas of future focus, our overall approach to monitoring; and what we expect of licensed providers of financial products and services.

Breaches and offences

There are a number of offences set out in the FMC Act, including the contravention of certain Part 4 governance provisions, as set out in section 228. Contravention of these provisions may give rise to civil liability. Part 8 of the FMC Act sets out further civil liability acts, infringement offences, as well as criminal liability offences.

The FMA is able to take action under the FMC Act, including making direction orders, issuing stop orders and infringement notices, and bringing criminal proceedings.

See the FMA's enforcement policy.

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Useful resources

Licences are issued under the FMC Act. Should you wish to reference your licence and the authority under which it is granted on your marketing material including; websites, business cards, brochures or letterhead please use the following:

For licences without restrictions:

[Name of licence holder as on licence] is a licensed manager of registered schemes or
[Name of licence holder as on licence] is licensed under the Financial Markets Conduct Act 2013 as a manager of registered schemes.

For licences with restrictions:

[Name of licence holder as on licence] is a licensed manager of [type of scheme eg registered forestry] schemes or
[Name of licence holder as on licence] is a licensed to manage the [name scheme] scheme or
[Name of licence holder as on licence] is licensed under the Financial Markets Conduct Act 2013 as a manager of [type of scheme eg registered forestry] schemes or
[Name of licence holder as on licence] is licensed under the Financial Markets Conduct Act 2013 to manage the [name of scheme] scheme.

Your marketing material must not refer to your licence as an FMA licence.

New Zealand, Australia, Japan, Korea and Thailand are members of an arrangement called the Asia Region Funds Passport. The passport allows a managed fund based in one country to be offered more easily to investors in other participating countries. The passport arrangements are set out in the Financial Markets Conduct (Asia Region Funds Passport) Regulations 2019.

If you want to offer interests in a New Zealand registered MIS into another passport country you will first need to apply to the FMA under s 134(3) of the FMC Act for the scheme to be registered as a passport fund. For further information about the Asia REgion Funds Passport, view their website.  

How to deal with unpaid and short-paid employer contributions to KiwiSaver schemes

Providers should reconcile contribution amounts that they receive against amounts that the providers expected to receive from each employer. Where the two amounts do not match up, providers should follow up this discrepancy and take appropriate action to address it.

Depending on the circumstances of the scheme, providers should be aware of any contribution shortfalls, and the appropriate action to take with any discrepancies.

Insurance premiums do not count as contributions under Section 68(2) of the Act.

Section 68(2) of the Act provides that payments for 'other things' such as life insurance premiums do not count as contributions under the Act, or towards a contribution rate, and cannot be paid via Inland Revenue. This means, for example, where such payments are made by an employed member they must be additional to the employee's chosen 3%, 4% or 8%.

Notifying FMA about preferred providers

Employers do not have to inform the FMA when they select a preferred KiwiSaver provider for their employees.

Statistical information on KiwiSaver schemes

You can find general statistics about KiwiSaver schemes in the FMA’s annual KiwiSaver reports. The FMA has a statutory obligation to publish a report every October based on the data provided by scheme providers.

When an employee starts a new job, if they do not already belong to KiwiSaver and are eligible, they will be automatically enrolled, unless their employer is exempt from KiwiSaver automatic enrolments.

Individual transfers between schemes don’t require a physical form

There is no requirement for a person to physically sign an application form to join the new scheme. This process can be done electronically. Because the process of transferring a member to a new scheme is treated as a contract, providers can meet the requirements for a valid contract by using the applicable rules for electronic contracts.

The FMA can approve bulk transfers without written consents

Members generally cannot be transferred between KiwiSaver schemes without their prior written consents - see section 179 of the FMC Act. However, section 181 of the FMC Act enables a KiwiSaver scheme provider to apply to the FMA for approval to complete a proposed bulk transfer between two KiwiSaver schemes without members' written consents.

The FMA must be satisfied that the terms and conditions of the scheme are no less favourable than those of the of the old scheme, and that the transfer is otherwise reasonable in all the circumstances, as well as certain other conditions being met. We have not issued guidelines as we will consider any applications on a case-by-case basis. However, in relation to the 'no less favourable requirement, providers should note the guidance set out in APRA Superannuation Circular No. I.C.4.

Members must be notified that the applicant has applied for the FMA’s consent to transfer the person without the person’s written consent and that they have the right to make a submission to the FMA about the transfer proposal. We would expect members:

  • to have at least 28 days to make that submission; and
  • be given sufficient comparative information, including fees, investment options and member services, to enable them to make their own value judgements

Providers must give notice to every proposed transferee in a bulk transfer that they have applied to the FMA for our consent to proceed without the written consent of every member.

This process is contained in section 181 of the FMC Act. As long as the provider has given notice to the members about the transfer and allowed members to make submissions to the FMA about the transfer, then the bulk transfer may proceed without the consent of scheme members.

The scheme provider should send the following information to the FMA before they are finalised and sent to members:

  • a draft of the formal application letter under section 181; and
  • draft copies of the transfer notice communications for members.

As noted above, the FMA expects proposed transferees to be provided with sufficient comparative information; including fees, investment options and member services, to enable them to make their own value judgements about the transfer, and to assist in any submission they may make to the FMA about the proposed transfer.

Please send these to [email protected] with the subject line ‘KiwiSaver transfer application form section 181 Financial Markets Conduct Act 2013'.