The Financial Markets Authority has released an information sheet explaining how it expects fund managers to disclose performance-based fees to investors.

It wants it made clear that the absence of a high-water mark can mean investors pay twice for the same performance and for performance fees to be tied to an “appropriate” index.

David Ireland and Catriona Grover of Kensington Swan, made a submission saying it was incorrect for FMA to describe such benchmarks as “inappropriate”.

“This is a commercial matter, and should not form part of FMA’s regulatory guidance. Provided the hurdle rate is clearly identified, and where it differs from the appropriate market performance measure that distinction is clearly and effectively disclosed, that should be the end of the matter. Hurdle rates that must be surpassed before a performance fee is charged may differ from the relevant market index measure for a number of commercial or marketing-related reasons, many of which may be reasonable.”

Other submitters, such as Milford Asset Management, also took issue with the FMA's guidance.

But adviser Brent Sheather said it was a conflict of interest for Ireland to take the stance.

He said Ireland told advisers, as chair of the Code Committee, that they must always put their clients first.

“To tell financial advisers they have got to put the clients’ interests first and at the same time promote a definition that is not good for clients, that’s a real conflict,” he said.

“If performance fees with appropriate benchmarks aren't viewed as attractive by the likes of the NZ Super Fund then performance fees with inappropriate benchmarks almost certainly should not be inflicted on retail investors.

“Therefore financial advisers who are required to put client's interest first should not be recommending funds with unfair performance fees. In his job at the Code Committee he is batting for retail investors but in his submission to the FMA on performance fees he appears to be reciting the same arguments as used by fund managers.”

Another industry commentator said it was an example of the balance that participants had to strike when they had regulatory roles but also worked in the industry and needed to represent their clients.

Ireland rejected any suggestion of a conflict.

“He is entitled to his views, and will no doubt continue to share them with the world. I remain unconvinced he has actually read the full submission we made to place the sentence he continues to misquote in its proper context, or understood the point being made. It is unfortunate he has placed his own spin on a submission piece to mount a personal attack, but at least he is consistent.”