Managers are transitioning to the new Financial Markets Conduct and the FMA released a guidance note in May on how they should manage their fee disclosure requirements.

But adviser Brent Sheather said despite the move to a new, standardised product disclosure statement, which includes more explicit detail about typical fees charged to investors, there were still significant costs not being disclosed.

He said a key one was the brokerage fee paid to stockbrokers to trade portfolios

“It is standard practice in NZ and overseas to leave these costs out when calculating the fee structure of the fund. Furthermore some fund managers include these costs when producing the Statement of Comprehensive Income and others don't,” he said.

“One fund manager disclosed in the Statement of Comprehensive Income, which no one reads, that the brokerage charges paid to stockbrokers were $3million in 2016 which is material in the context of a $300 million fund. These charges however were omitted from the expense ratio calculated in the investment statement which the regulators tell us is the "go to" document for full disclosure.”

John Berry, of Pathfinder Asset Management, said in some cases high-turnover funds would have annual brokerage fees as high as the management fee. “This is a real cost for investors and something I would expect investors would want to know. Rates for brokerage are not standard.  We use the most efficient offshore brokerage solutions we can find - our brokerage can be less than 0.03% where a local broker may charge us up to 10 times that amount.  By not being required to disclose trading costs. investors get no feel for how efficiently a fund manager runs the fund.”

But he said investors sometimes paid a “spread” to cover the costs of brokerage.

“If an investor comes into our Global Property Fund the entry price is NAV plus 0.05%.  The extra 0.05% is to cover brokerage expected to be incurred for trades relating to that investor. They cover the cost of them joining the fund - therefore that brokerage expense should not need to be disclosed - it is not a cost shared across all investors in the fund.  But if the fund does not charge a bid/offer spread then the brokerage is a real cost shared by all investors.”

George Carter, of Nikko, said there were reasons not to disclose.

“Brokerage isn’t a cost that is incurred as a result of investing in a fund as opposed to investing directly.  So, costs such as trustee fees, unit registry, and fund accounting are all expenses that you wouldn’t incur if you went to a broker and bought/sold securities directly; but you would still be subject to brokerage fees, and often higher for individuals that what institutions can negotiate,” he said.