Advisers losing out: Morningstar

Morningstar’s latest biennial report into the experience of managed fund investors worldwide notes that New Zealand financial advisers are losing market share.

Wednesday, June 10th 2015, 6:00AM

by Susan Edmunds

The Global Fund Investor Experience report by the research house surveys the experiences of managed fund investors in 25 countries across North America, Europe, Asia and Africa.

Morningstar researchers identified Korea and the United States as the most investor-friendly markets and China the least investor-friendly market.

New Zealand scored a grade of C+ in the 2015 survey, up from C- in 2013 and D- in 2011.

The grades are decided on the basis of four categories: Regulation and taxation, disclosure, fees and expenses and sales and media.

New Zealand scored a C+ grade for disclosure, recognising the regulatory changes that have been made since 2013. The Financial Markets Conduct Act now requires fund managers to make portfolio holdings information available and provide short-form PDS documents. But Morningstar noted that no trading cost measure, marketing and distribution, or embedded advice fees are included in the statements.

The country’s grade for regulation and taxation also improved, to a C.

“The government has been aggressive about changing regulations and improving legally required disclosures,” the report said.

The best grade was for fees and expenses, where New Zealand received a B. Costs for home-grown funds are in line with or slightly below the global average, the report noted.

The country received a C+ for sales and media, where it was noted that advisers are losing ground.

The report said investors had the full spectrum of sales channels available to them but distribution by financial advisers was losing share to the banks.

“New Zealand particularly stands out in requiring that financial advisers consider all competing investments before making a recommendation, but the practice of using sales contests to motivate the general sale of funds is allowed with little oversight or guidance.”

Director of manager research Tim Murphy said it seemed the regulators had listened to concerns that had been raised about the New Zealand market.

In-flows to the market, particularly via KiwiSaver, showed investor confidence, he said. “There’s certainly a high degree of positivity there.”

But he said the tax structure was still complex and the distribution questions should be tackled.

“There probably is room for improvement from an investor perspective, how that plays out, whether it’s good it is concentrated in the hands of a few. That’s one area that could always be improved. But the key thing is the trend is positive. The activity around regulation is generally positive for the industry.”

He said New Zealand investors should hope to see another improvement in the next survey, in another two years’ time.

Tags: Morningstar