The introduction of the Financial Markets Conduct Act (FMC) has lifted New Zealand’s funds management industry up a notch in the latest Morningstar ‘Global Fund Investor Experience’ report.
Produced biennially since 2009, the Morningstar study, which rates the funds industry in 25 countries across four qualitative categories, awarded NZ a C+ in the 2015 report – up from a bottom-of-the-class C- in 2013 and an almost off-the-scale D- in the inaugural analysis.
“New Zealand’s grade improvement from previous studies stems from ongoing changes in regulation and disclosure,” the Morningstar study says.
Under its disclosure section, the research house gives New Zealand a thumbs-up for FMC-related improvements in transparency, particularly the new requirement for managers to regularly publish details of underlying portfolio holdings – a constant bugbear for Morningstar.
As well, the researcher gave NZ marks for the short-form product disclosure statement and an “even shorter-form” key information document rules currently being phased in under FMC regulations.
The new disclosure requirements “with strict word limits are designed to allow investors to quickly identify important characteristics of funds, minus all the wordy distractions”.
“There is still ambiguity about fee disclosures for New Zealand funds, leaving room for further disclosure improvements,” Morningstar warns in the report.
Despite these disclosure concerns, NZ earned a B for ‘fees and disclosure’ category – the highest the country was awarded of all four components in the Morningstar study – and, as with the disclosure category, representing an improvement on the previous report.
Under ‘regulation and taxation’ NZ scored a C – as per the 2013 study – while its ‘sales and media’ rankings fell to C+ from the previous B-.
“Investors have a full spectrum of sales channels through which they can purchase funds, and the dominant sales channel is characterized by broadly open architecture,” Morningstar says. “However, our analysts note that activity within the advisor space is losing share to banks with fewer offerings from multiple providers.”
Overall, Morningstar rated Korea and the US as the only A-class fund regimes with China (D+) inhabiting the wooden spoon spot held by New Zealand in 2009.
But the Morningstar report says its findings are intended to “spur dialogue about best practices” rather than to provide a definitive list of winners and losers.
“As a general rule, Morningstar favors active regulation of funds; low tax burdens on investors; increased disclosure; lower fund fees; a varied distribution system that gives investors many ways in which to purchase funds; and media coverage that helps to educate investors,” the study says. “However, Morningstar is open to hearing opposing views, as well as to learning from discussions about unresolved issues.”