Performance regulation could be based on ISI standard: Power

Commerce Minister Simon Power says if the Investment Savings and Insurance Association's (ISI) proposed investment performance standards are sufficiently robust, regulation could be based on them.

Monday, August 9th 2010, 5:00AM 2 Comments

by Paul McBeth and Jenha White

The Government decided in April that it would make regulations to require regular reporting, on a consistent and robust basis of fees, returns and asset allocation for retail KiwiSaver funds.

He expects that regulation will still be necessary as not all KiwiSaver providers are members of the ISI.

Decisions on the shape of the regulations are still to be made.

Power says he is pleased to see that industry has recognised that it needs to do better in this area and that the ISI is looking to provide standards for members to comply with.

The ISI came under fire from Louis Boulanger, chairman of the Global Investment Performance Standards (GIPS) council, for not adopting their standards last week.

However, the ISI is standing behind its proposed investment performance standards, saying it will draw on international best practice and tailor it to the local market.

The ISI commissioned PricewaterhouseCoopers to deliver a report to measure the performance of managed funds to let retail investors compared the performance of funds after fees and tax.

PwC financial services partner Paul Mersi told Good Returns the GIPS regime was sound, though its focus on asset classes' performance rather the net return from a fund manager meant it would require more work to adjust to a New Zealand setting, which has a greater emphasis on retail investors.

Because Australia's Investment Performance Standard had already done much of the work, that was more appropriate for PwC to adapt to the local industry, he said.

"GIPS is a perfectly adequate basis for the type of standard, but it would require modifications," Mersi said. "In our view, Australia has already taken the bulk of the work out of that job."

PwC has made its recommendations to the ISI, and is now preparing draft proposals for a suitable standard to be set.

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Comments from our readers

On 10 August 2010 at 10:38 am Mark Phillips said:

I agree that it is high time we instituted a National (and hopefully Global) standard method of reporting fund performance. I am not so sure that Taxation should be part of that standard as both Nationally and Globally the tax effect can vary returns dramatically depending on the individual's own personal tax position. Ideally performance net of fees should give investors a benchmark to compare returns against risk on a more level playing field. If the risk return profile is acceptable then taxation becomes a secondary decision. History is littered with financial disasters that promised on an "after tax" basis what looked like very attractive returns, what transpired was a highly leveraged investment which did not survive any economic cycles and left investors often with nothing.
So I recommend ISI provide a clean and level platform for your Investment Standard in the first instance, then allow your Adviser to explain to their individual client the after tax effect of that performance as it applies to the investor's own circumstances.
This would provide transparency for investors and an additional opportunity for advisers to interact with their clients to provide extra value added service.

On 10 August 2010 at 12:59 pm Tom said:

I agree that net of fees performance is a good measure for retail investors. Tax rates and rrules even in one market ahange regularly and reduce the ability to sensibly compare net of tax and fees returns over time. I don't think GIPS standards really give the results that retail investors are looking for as they are more focussed on Fund Manager returns and composition of "universes" of similarly managed funds. Retail investors want to know what their particular fund returned, not what the manager did across similar funds.