Fund managers score poorly, but improve

New Zealand has been ranked second-to-last in the world when it comes to investor friendliness.

Friday, June 7th 2013, 7:35AM

by Susan Edmunds

That’s according to the Morningstar Global Fund Investor Experience Report, which assess the experience of investors in managed funds in 24 countries, including Korea and Denmark for the first time.

It said that improving regulation and disclosure requirements were pushing New Zealand up the rankings.

The United States was ranked first in the world for investor-friendly practices based on criteria such as investor protection, transparency, fees, taxation and investment distribution. South Africa scored the worst.

This year’s survey was the third Morningstar had conducted.

In the first two, New Zealand came last with a rating of D-. This time, it has improved to a C-, still second-to-bottom but the biggest increase of the countries surveyed. Of the four categories Morningstar looks at – regulation and taxation, disclosure, fees and expenses and sales and media – New Zealand was judged worst for disclosure and best for sales and media. It said attempts at improving disclosure had been uneven.

It noted that New Zealand’s tax structure was complex on the surface but that was slowly improving. “There are a number of taxable scenarios depending on the geography of the investment and the domicile of the fund manager an investor chooses. But in the end, the total tax burden for New Zealand fund investors is low.”

Chapman Tripp partner Tim Williams said he expected that rating to improve with the introduction of the Financial Markets Conduct Bill this year and changes to KiwiSaver disclosure. The new laws will require KiwiSaver schemes to report annually and quarterly on fund performance and returns, fees, asset allocation and holdings, liquidity and liability and key personnel.

He said one of the things that New Zealand was marked down for was the lack of an electronic register for people to consult. He said unit trusts already disclosed their holdings via the companies office but the FMC Bill would make the online information available more fulsome. Williams said there were benefits in having a system that was consistent with the rest of the world.

He said the new KiwiSaver periodic disclosure regulations, which come into force on July 1, would make the biggest difference to the ranking. “Morningstar indicated that New Zealand was marked down heavily for not requiring disclosure of asset allocations, portfolio holdings and performance details.”

The report showed that New Zealand funds charge lower fees than those provided from offshore. Chapman Tripp said that was probably partly due to the FMA’s efforts in requiring fees not be “unreasonable”.

The Morningstar survey noted that commission bans are spreading around the world. “This will prevent many conflicts of interest but it is still to be seen if investors will fare better with fewer avenues to pay advisers.”

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