Inaccuracies and regulatory framework contribute to poor managed funds score

Some of the responsibility for the poor relative investor experience performance of New Zealand managed funds lies with our regulatory environment and Morningstar inaccuracies, not the fund managers themselves, says Tim Williams, a Partner with Chapman Tripp.

Mr Williams was commenting on the global analysis by US-based Morningstar Fund Research which gave New Zealand a D- for investor experience and the bottom overall score among 16 countries.  Funds’ financial performance was not part of the evaluation criteria. 

“Look closely at the results, and New Zealand secured its lowest scores in the investor protection, transparency in prospectus and reports and tax categories; getting D- in all three. 

“Clearly, the fund managers do not control the taxation regime and they can scarcely be blamed for what Morningstar perceives as insufficient resourcing of the Securities Commission.

“The report is also inaccurate in some places, for example in the alleged “lack of portfolio-holdings disclosure”.  In fact, asset lists for unit trusts are publicly available in financial statements registered with the Companies Office annually.“

Similarly, New Zealand might have been judged less harshly had Morningstar been aware that all prospectuses must be registered with the Companies Office.  True, this does not include investment statements, but New Zealand was cited as having no centralised public website for offering documents, which is untrue.  

“Also we were cited as the only country where a typical investor pays a tax rate of more than 30% for capital gains generated from mutual fund investing.  However the maximum PIE tax rate is 30% (with many investors’ rates being lower), and PIEs do not pay capital gains tax on their New Zealand and certain ASX listed equity investments.  Outside funds, New Zealand does not have any general capital gains tax at all.  

“New Zealand was criticised for not having laws requiring custodians to be independent of managers. However unlike some countries, including Australia, New Zealand’s laws require independent trustees, and the trustees appoint the custodians so adequate protection is provided through a different means.

“It is also worth noting that in those areas over which the fund managers can exert greater control – transparency in sales and media, fees and expenses and distribution/choice – New Zealand scored B, B- and C+ respectively,” Mr Williams said.

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Related topics: Funds, KiwiSaver & superannuation; Capital markets reform; New Zealand productivity

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