Most Read Contributor in New Zealand, September 2016
Another Morningstar Global Fund Investor Experience
Report, another clip around the ear for New Zealand. In the
first two reports – 2009 and 2011 – we came dead last
with a rating of D-. This year we scored a C- which is an
improvement but still puts us second to bottom.
However we would expect the 2015 survey to show a sharp rise in
the ratings to reflect the coming into effect of the new KiwiSaver
disclosure rules and Financial Markets Conduct Bill.
The Morningstar method
Morningstar seeks to measure how investor-friendly managed fund
markets are in different jurisdictions based on criteria such as
investor protection, transparency, fees, taxation and investment
distribution. It sets a helpful scorecard for our legislative
framework (but marks us harshly in some areas).
The four categories Morningstar assesses on, and New
Zealand's current grading in each, are:
regulation and taxation C
fees and expenses C
sales and media B-
As will be evident, many of these factors relate to the general
regulatory and legislative environment, and are not a criticism of
fund manager behaviour.
Disclosure was our worst mark, but our grading should improve
substantially next time when full credit is given for the
standardised KiwiSaver periodic disclosure regulations, which come
into force on 1 July this year. Morningstar indicated that New
Zealand was marked down heavily for not requiring disclosure of
asset allocations, portfolio holdings and performance details.
The new laws will require KiwiSaver schemes to report quarterly
and annually on:
fund performance and returns
fees and costs
asset allocation and portfolio holdings
liquidity and liabilities, and
key personnel, policies and conflicts of interest.
Chapman Tripp's commentary on the new regulations is
here. Morningstar encourages extending the reporting to other
Rated too harshly?
New Zealand's grade may have been higher, had
not mistakenly stated that investment statements need not
contain risk descriptions and manager information
recognised that performance disclosure is required in fund
realised that the 1 July KiwiSaver disclosure reforms require
quarterly (not only annual) website and FMA reporting, and will
exceed the semi-annual benchmark set in the report
given credit for the requirement that full unit trust portfolio
holdings are filed annually with the Registrar of Companies (albeit
not sent to investors)
recognised that New Zealand has a website based electronic
established that New Zealand does not in fact have a capital
gains tax on domestic shares
given credit for New Zealand's foreign investor regime,
where foreigners pay no tax on 0% PIR foreign investor PIE funds
(when the funds invest in foreign assets), and
given credit for the FMA's Guidance Note on Effective
Disclosure (and prospectus review) which encourage consideration of
underlying fund manager disclosure when it could be material, which
does not appear to be matched in many other countries.
On a positive note
The report provides fee data showing that domestic funds have
lower fees than those provided from offshore. Credit here may lie
partially with the FMA which has actively required KiwiSaver fees
are at the low end when ensuring KiwiSaver fees are not
"unreasonable" as required by the KiwiSaver
New Zealand has a very low incidence of taxation on its managed
funds compared to the rest of the world.
Although not a specific Morningstar measurement category, the
governance requirements applying to managed investment schemes,
including KiwiSaver, will be strengthened through provisions in the
Financial Markets Conduct Bill. The current intention is that the
new Act come into force on 1 April next year (with a two year
transition period), although that may slip out to July. The new
regime should also score well for the proposed website-based
repository of fund information.
Chapman Tripp's commentary on these aspects of the Bill is
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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