New Zealand 'below average' for investors, Morningstar says

More product providers offering tied financial advice is a “retrograde trend” that could be detrimental to investors, Morningstar says.

Tuesday, April 28th 2020, 10:00PM 1 Comment

Greg Bunkall

Morningstar has published the second part of its biannual Global Investor Experience report, which looks at the experiences of managed funds investors in 26 countries around the world.

The second part looks at regulation and taxation.

New Zealand received a below average grade, falling short of the standards set by other markets in incentivising investing and protecting investors.

Top grades were given to the UK, Netherlands and Sweden, partly because they provided strong incentives for ordinary people to invest.

Along with New Zealand, below average grades were given to Australia, Canada, China, Japan and the US - markets where the regulatory and tax schemes needed to improve.

Morningstar did not give any country a "bottom" grade because there was at least basic protection for investors in all of them.

Morningstar data director, Asia Pacific, Greg Bunkall said the Financial Markets Conduct Act had stopped New Zealand from being an outlier.

"But if you're standing still you're going to go backwards because it's a relative report."

He said more should be done in New Zealand to incentivise long-term saving versus short-term or other sorts of investing.

Even KiwiSaver had little incentive to encourage long-term behaviour, he said.

In other countries, there were options such as tax incentives for people who stayed in funds long-term.

There was also a lack of disclosure around transaction and operational costs in New Zealand, he said. While management fees were well disclosed and reported, costs associated wit buying and selling securities could be a hidden cost to investing.

Bunkall said Morningstar was also not impressed by the trend for product providers to offer financial advice. “We’re seeing the complete opposite in Australia – here funds managers are bringing financial advice teams to market and hiring financial advisers for them. We don’t want to see conflicted financial advice.”

He said it was a concern that new financial advice legislation could increase that trend. “It’s a strange kind of direction of travel, very suboptimal.”

Countries at the top of the ranks had introduced commission bans, he said. “If New Zealand wants to go up the scoreboard that’s one of the areas that should be addressed.”

 

Tags: Morningstar vertical integration

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Comments from our readers

On 29 April 2020 at 10:34 am Pragmatic said:
I'm always interested in these reports. Thanks Greg

Whilst I understand the concern by the trend for product providers to offer financial advice, this is a natural reaction for an embryonic industry of providers whereby the requirements of the investors are superseded by the ambitions of the business owners.

A more discerning advice industry will increasingly question aspects such as attribution, business risk, aligned interests, and capacity - making life increasingly difficult for some domestic providers. Further, the increase in technology will provide local investors with greater offshore choice, adding to the challenges of domestic managers in ramping up their profits.

Interestingly, more mature environments tend to unpack the wealth management value chain, with each component required to demonstrate their relative value against peers. Mysteriously Australasia has led the way in packaging this up - although in recent years large institutions are recognizing the error of their ways, and reverting back to what they do best.

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