The Morningstar view on KiwiSaver reporting

Regulation for KiwiSaver schemes should place investors at the fore and not be led by product providers, and payments to advisers at the cost of investors should be disclosed, according to Morningstar.

Wednesday, March 23rd 2011, 7:09AM

by Benn Bathgate

In its submission to the Ministry of Economic Development (MED) Periodic Reporting Regulations for Retail KiwiSaver Schemes Discussion Paper Morningstar also said improved disclosure would encourage greater investment in managed funds.

"We believe that mandatory, periodic disclosure of comprehensive portfolio holdings would increase equity between managed fund investors and encourage greater engagement with retirement savings and pooled investment vehicles more generally," the company said.

Morningstar also advocated full disclosure of any fees paid to financial advisers, however, "if the payment to advisers is being paid by the fund manager then the information is not so pertinent. Information about the sales practices of a scheme through an adviser channel would be interesting information, but it doesn't help the end investor make a more informed decision."

Morningstar also outlined its responses to  questions on a number of issues  raised by the MED paper.

It agreed that any costs deducted from a fund should be disclosed and that there should be a prescribed set of terms for each fee type.

On the issue of performance fees Morningstar agrees with the MED view that they should be disclosed, saying, "There is no rationale or justification for not disclosing performance fees," it also advocates a wider disclosure regime.

"Simply disclosing the performance fee is not enough, though. Morningstar believes that the terms of the performance fee should be disclosed as well as the fee itself."

The submission says fund managers should also disclose performance fee quantum, benchmark, hurdle, high watermark, reset period and crystallisation period.

Fuller disclosure of fees would create simplicity, uniformity and comparability and "show the investor the impact of the performance fee on their return, and provide at least a very good approximate basis for comparison."

The submission also advocates mandatory full portfolio holdings disclosure, noting that despite fund management industry criticism, "Morningstar is yet to find a country where mandatory portfolio holdings disclosure has been harmful to capital market development."

On wider regulation while Morningstar sees GIPS as the ‘gold standard' for the calculation and presentation of performance figures, the company said it remains comfortable with the Investment Savings and Insurance Association's approach.

"GIPS is by and large a strategy or asset class institutional approach to performance reporting not really appropriate to the New Zealand retail market."

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to

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