Kiwi investor experience improving: Morningstar

New Zealand has received its best ranking yet from Morningstar’s biennial survey of investor experience, but the study flagged concerns about vertically integrated organisations’ sales practices.

Thursday, October 12th 2017, 6:00AM

by Susan Edmunds

The Morningtstar Global Fund Investor Experience Study has been running since 2009, measuring the experience of investors in managed funds across 25 countries.

It looks at how the local fund management industry works, the practices of distributors, the structure and effectiveness of regulatory bodies; disclosure policies; and the tax code.

Overall, New Zealand was rated average. The United States received the highest grade.

In the first survey in 2009 New Zealand was at the bottom of the pack.

This year, New Zealand ranked below average in regulation and taxation, average for disclosure, top for fees and expenses and average for sales.

Regional portfolio acquisition leader Greg Bunkall led the research in New Zealand. He noted that while investors have a full spectrum of sales channels through which they can purchase funds, the market was dominated by a number of large managers.

He said other markets were starting to move away from concentration of aligned advice, and product providers advising on their own products. “An obvious example is Australia, where the banks are essentially getting out of their wealth management divisions.”

He said while there was a “best interest” element in New Zealand’s advice and regulation around that, there were too many exemptions for it to be meaningful.

The Financial Services Legislation Amendment Bill would not fix the problem because it too had too many exemptions, he said. “We’re still expecting aligned advice to exist and be pretty prevalent here.”

New Zealand’s experience of fees improved year-on-year in the survey. Bunkall said, compared to Europe and most parts of Asia, New Zealand paid low fees.

“That being said, it can still improve. Fee reductions can be made. We expect to see more money go into passive and ETFs and that will change [fees] over the long term.”

Payment for advice was increasingly being done directly as opposed to through fund commissions, and the use of front loads on funds was decreasing, the report noted.

Regulation had improved with the introduction of the Financial Markets Conduct Act, but there was still more work to be done.

While New Zealand had a robust regulatory framework, there were a number of areas that trailed best practices, including limited restrictions on the use of soft dollars, the lack of supervisory boards for funds, and the regulation of fund advertising is not as comprehensive as other markets. Disclosure of performance fees could be clearer.

Bunkall said this country had improved a lot over the time the survey had been running. “This is the best result New Zealand has had.”

Tags: Morningstar