Are you being double-taxed?

As any engaged reader of the New Zealand media will have noticed there has been a recent marked increase in the number of articles and commentary debating active vs passive and the fees charged to investors. The growth in KiwiSaver and the new Financial Markets Conduct Act have, undoubtedly, had a part to play in this by increasing the focus on reporting with an emphasis on disclosure of fees.

In general, the arguments have been around whether active managers can outperform their passive equivalents and justify their higher fees. Indeed, ceteris paribus, the higher the fee charged the lower the net return for investors. But is this really all that should matter to investors?

Let’s first breakdown the components of an investor's return.

Net Return	= Investment gross return
	- Fees
	- Tax paid

All the commentary we have read focuses on the first two items above, namely whether an active manager can generate enough gross returns to offset fees. We don’t plan to add to this debate. Rather, we would like to highlight some different points, that can be equally material, but from talking to investors and advisers are often completely overlooked.