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NZ fund managers no dunces
Wednesday 20th of May 2009
So Morningstar has given New Zealand’s funds management industry a D- essentially calling us the dunce of the world.
Well I think this is unfair. Australia got a C and the United States, that place where you have had Bernie Madoff and the sub-prime crisis, gets an A.
Sorry this just doesn’t compute.
Now let me be quite clear, I am not saying New Zealand is perfect, or the best of the 16 countries Morningstar surveyed. Yes, there is room for improvement. Yes, striving for “global best practice” (whatever that is) sounds like an admirable goal.
But are investors really getting such a bum deal from the funds management industry? No.
Here’s what I think. Do away with Investment Statements. They tell investors nothing meaningful.
They are glossy, bland documents which tell you little useful.
Increase the resources of regulators and make sure the Securities Commission is really providing investors with protection. I struggle to think of an instance where it has done anything to help retail investors in managed funds.
Acknowledge that KiwiSaver encourages long-term savings and has some incentives. Apparently we got marked down because countries like Australia have tax systems which encourage long-term savings.
Hey, Morningstar, didn’t you notice New Zealand is one of the few places without a capital gains tax?
The PIE tax regime is a huge plus for investors. Apparently that didn’t count much as around one third of the funds in the market are not PIE compliant.
That is an issue for the industry. I have argued for years that fund managers need to get rid of crappy legacy funds.
One thing the industry needs to do urgently is have a clear set of rules for reporting on fees. There is no industry standard these days and managers can massage fees and therefore performance willy nilly.
When you are at it, make it in dollar terms please.
The final point, of course, is that Morningstar wants full disclosure of portfolio holdings. Yes, it's a point of frustration, but it's probably more frustrating for the researcher than investors as it needs that information for its fund manager analysis.
Do you thing a D- is an accurate rating? What do you think the funds management industry needs to do to improve its practices?
Comments (6)
Clayton Coplestone
I have spent time in both the US & China evaluating their funds management industries (in fact I completed a substantial JV in the Chinese funds management industry, and was a Board representative on another Chinese funds management organisation). Having reviewed the report I am unsure of who were the subjects of the research - but would strongly suggest that both jurisdictions have massive deficiencies in the areas of investor protection, prospectuses and investors' reports, transparency in sales practices and the media, fees and expenses, taxation, and distribution practices
I have also spent a large chunk of my career in both the NZ & Australian industries - and whilst there is always room for improvements – would advocate that the funds management industries are as robust and comprehensive as any in the world. It is argued by respected industry observers that the Australian funds management industry is alongside the US industry as the most sophisticated in the world.
I agree with deficiencies in the area of transparency – where there is a need for full & fair disclosure globally.
Whilst regulation is a significant component of an industry development, the inference is that this report was evaluating all components of the funds management industry. In this case, I would significantly disagree with the headlines and question whether the author physically visited each of the 16 jurisdictions referred to.
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15 years ago
Philip Macalister
Interpret with care
Yesterday saw the release of a report that shed some interesting insights into the investment sector in New Zealand and abroad.
Granted, the Morningstar Global Fund Investor Experience report positioned New Zealand in a very negative light – ranking New Zealand last out of 16 countries with a D-. But if you take the survey on face value then you may get the wrong message. As with any survey, the Morningstar results need to be interpreted with care.
The Morningstar report doesn’t comment on investment performance but instead focuses on the structures of the funds that New Zealanders invest into – the regulatory framework, taxation, transparency and fees.
Here in New Zealand managed fund providers are governed by a raft of different organisations and associations including the Securities Commission, Investment Savings and Insurance Association, Companies Office, Government Actuary, Insurance and Savings Ombudsman, Commerce Commission, Privacy Commissioner, Corporate Trustees and others– all of which have a mandate to look out for investors’ interests.
Amid incorrect assumptions around our country’s structures (in particular, tax), the report does raise some valid issues including the need for investors to know the make up of their portfolios and where their money is invested. The industry has been closely involved in the development of a raft of new legislation designed to address many of these issues.
Overall, New Zealand does not deserve an A, more work needs to be done in the investor space to achieve this; but New Zealand is nowhere near a D- either. New Zealanders have access to high quality managed funds but there are always opportunities to make investment easier and ensure investors are more informed.
Overall, the report is useful in that it has identified issues that New Zealand is already working on and reinforces the work that is underway. In the meantime, we encourage Morningstar to consider reviewing its survey with a better understanding of New Zealand’s system and correct information and release an updated report accordingly.
Peter Verhaart is General Manager at AXA Global Investors.
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15 years ago
Philip Macalister
You can listen to Philip on Morning Report here http://www.radionz.co.nz/__data/assets/audio_item/0004/1953589/mnr-20090520-0816-International_survey_on_fund_mangement_overly_harsh-m048.asx
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15 years ago
Clayton Coplestone
I have spent time in both the US & China evaluating their funds management industries (in fact I completed a substantial JV in the Chinese funds management industry, and was a Board representative on another Chinese funds management organisation).
Having reviewed full report I remain unsure of who were the subjects of the research - but would strongly suggest that both the US & Chinese jurisdictions have massive deficiencies in the areas of investor protection, prospectuses and investors' reports, transparency in sales practices and the media, fees and expenses, taxation, and distribution practices
I have also spent a large chunk of my career in both the NZ & Australian industries - and whilst there is always room for improvements – would advocate that the funds management industries are as robust and comprehensive as any in the world. It is argued by respected industry observers that the Australian funds management industry is alongside the US industry as the most sophisticated in the world.
I agree with deficiencies in the area of transparency – where there is a need for full & fair disclosure globally. It is difficult to single out NZ in this area.
Whilst regulation is a significant component of an industry development, the inference is that this report was evaluating all components of the funds management industry. In this case, I would significantly disagree with the headlines and question whether the authors physically visited each of the 16 jurisdictions referred to.
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15 years ago
Philip Macalister
Here is what the ISI says
The Morningstar report of managed fund investor experiences which place NZ at the bottom of an international list is not a great surprise.
The industry has been calling for improvement in a number of areas of regulation and reporting requirements. The Morningstar report adds further weight to a reform agenda. Managed funds represent a significant and increasing part of personal savings in this country and need to have robust protection. Some of the remedies are within the control of fund managers and others are a question of Government policy.
The ISI is already working to introduce improved voluntary standards for consistent disclosure of fees and charges and reports on investment performance.
In the section on taxation we believe the report is unduly harsh. This industry has for many years called for reform of the over-taxation of savers. ISI has consistently called for incentives to encourage long term savings, similar to those that exist in other countries. The fact that these have been slow coming is a reflection of the neglect the savers have endured from policymakers. The introduction of the PIE tax regime from 1 October 2007 was a big step forward and we have seen a large swing to PIE tax products. We understand that the Morningstar low rating is driven by the fact a large number of managed funds are still taxed on the old basis. However, many of these funds are small and the costs and difficulties from legislation requirements for closing or merging the small funds would exceed the value of taxation gains. The industry is actively encouraging individuals to voluntarily switch to PIE tax products as a more efficient means to bring value to investors.
It seems that disclosure of portfolio holdings would not be difficult to achieve. It is only a position at a single point but if this is important then we will look at providing this information
This industry is rigorous in its compliance with regulation. We accept the Morningstar suggestions that some regulation hurdles could be raised for the benefit of investors. ISI will continue its efforts to improve regulation and the resulting experience for New Zealand investors.
The Morningstar recommendation that fund mangers explicitly disclose their affiliation with custodians for better protection of fund investors makes good sense. ISI will be encouraging its members to adopt this as an additional voluntary disclosure.
The Morningstar report needs to be taken in the context of identifying areas where the industry can further improve its performance and experience for investors and on that basis is a welcome addition.
<em>Press release from Vance Arkinstall, ISI CEO</em>
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15 years ago
W K
Well, maybe NZ fund manager are rated 'D-', but I wonder what US fund managers are rated 'A' for? Only need to look at Lehman Brothers, AIG, Citigroup, and of course, Madoff.
Btw, Global Finance released the top 50 safest banks on Feb 25 2009. No US banks fall into the top 10 (all European Banks), not even top 20. Only Wells Fargo (21) & US Bancorp (26) is in the top 30, follow by Bank of NY Mellon at 35 and JP Morgan at 47.
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15 years ago
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