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[The Wrap] Getting politically correct with fund managers

Hardly a day goes by without someone moaning about not being able to do so and so as it's no longer politically correct. Now fund managers can join that chorus.

Friday, April 23rd 2021, 1:35PM 10 Comments

by Philip Macalister

It seems the Financial Markets Authority (FMA) is heading down those lines telling fund managers what they can and can't advertise.

This week it put out a release warning about advertising short term performance returns. No doubt one of the catalysts for this was NZ Funds rather large billboard in Wellington airport promoting its 107% returns in the year ending March 31.

"The first KiwiSaver fund to deliver more than a 100% return in 1 year" the billboard crowed.

Good on NZ Funds for this result. 

Why the regulator thinks that stopping a legitimate firm, advertising a fact is a good use of its time is hard to fathom. After all the ad has the required small print about past returns not being a predictor of future returns. (And it's not all that small on a billboard this size.)

It's interesting to see how NZ Funds achieved this result, especially its use of cryptocurrency. But that is another story.

One of the ironies is that Morningstar and FE Analytics are quoted as sources for performance numbers, but NZ Funds won't turn up in these reports as it, we understand, stopped supplying performance data.

FMA director of investment management Paul Gregory says advertisements should focus on longer term returns. Maybe an extension of this argument is that research firms like Morningstar should delete any returns of less than 12 months from all its performance tables.

Investors have always chased returns and they will continue to do so. It's just human behaviour, just like it is human behaviour to try and find the lowest mortgage rates. How many people joined Milford on the back of the promotion of its strong performance over the years? I know plenty of people who have done just that.

The FMA goes on to say it "notes shifting the performance period back just one month makes a significant difference to the result."

Hey, but haven't fund managers cherry picked performance numbers ever since day dot? I've seen enough presentations over the years to have become somewhat cynical about return graphs and benchmarks used.

Anyone in the industry should be concerned about comments like this from the FMA: "Where a provider decides to, or continues to, promote the strong returns seen over the 12 months to March 31, we will be closely monitoring whether doing so potentially breaches the fair dealing provisions contained in the Financial Markets Conduct Act 2013."

A far better message from the FMA would be to make sure everyone in KiwiSaver gets professional advice.


Tags: Opinion

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Comments from our readers

On 24 April 2021 at 8:12 am w k said:
phil, advisers had spent the last 30, 40, 50 years in the biz. then somebody who have not sold a single thing or given advice in their life came around and tell them what their advice and sales process were all wrong, not compliant, need to upgrade, change title, etc.
political correctness or sheer madness? what do you think?
On 25 April 2021 at 6:41 pm LNF said:
I have been in the risk business since 1968. I am no longer registered
If a client has an issue, I can no longer advise or assist them
because if I do, some bureaucrat who would never survive outside their non event role would sit in judgement
Sorry to say. Industry groups failed their role
On 26 April 2021 at 9:23 am Pragmatic said:
Personally I have no issues with investment schemes promoting their historical returns, as long as they’re accurate and (preferably) vetted by a third party (Morningstar, FE, etc).

I also believe that investment schemes should promote their price, if they believe that this is a competitive advantage. Again - with the price being confirmed by a third party.

What I take exception too is when an investment scheme promotes their capability at the expense of other industry participants by putting them down. This is not only confusing for consumers, but also shows the industry to be unstructured & cavalier.

Oh - and for the record, the Regulator should focus on enforcing the rules rather than passing judgement on advertising practices (“invitations to treat”).
On 26 April 2021 at 8:23 pm John Milner said:
It seems the last sentence in this article is the only one that makes any sense. I’m still trying to work out why the FMA insists on fund managers illustrate their returns after tax (the highest) against a benchmark. How does this help anyone???
On 27 April 2021 at 9:09 am Bruce McLachlan said:
For the record Phil, our team at Fisher Funds made a conscious decision not to advertise 1 year returns to 31 March 2021 as in our case they were factual but highly misleading. This decision was made prior to the FMA guidance.
On 27 April 2021 at 2:28 pm All hat no cattle said:
but now I'm dying to know if the number was more than 107%...
On 28 April 2021 at 8:41 am Pragmatic said:
I’m unsure why Fisher Funds wouldn’t promote their 1 year performance numbers - especially if they were outstanding. Mathematically these impact the 3 & 5 year numbers, so why not?

The most “interesting” aspect of this conversation is how the performance was achieved. If a consumer invested in a scheme believing that it used - say - equities to achieve performance, & later discovered that the scheme used - say - exposures to crypto currency & gold, then there may be an issue. Perhaps the Regulator should be focusing on this aspect rather than promotion of performance & price...
On 28 April 2021 at 10:16 am MPT Heretic said:
Latest REINZ advertising...median prices for residential property across NZ increased by 24.3% in the year to March 2021, a new record high!
Where is the FMA comment?
On 29 April 2021 at 8:24 am smitty said:
@ MPY Heretic (and being slightly cynical here) don't forget that housing has been carved out from being covered as an investment class. Us Financial Advisers are still held to account about our views etc... and must advise prudently, but anyone else can talk it up a storm. Still beggars belief that one can mortgage up by hundreds and thousands of dollars to buy an investment property and yet not have the same prudent advice process that we must apply to start a savings plan for $100.00 per month...
On 30 April 2021 at 11:02 am Mr Mojo said:
Most industry fringe dwellers operate in the most attention seeking way possible primarily because it helps raise profile, sales etc. It was only a few months ago NZF disclosed disingenuously they'd included a crypto-currency into their portfolio which was a similarly desperate act to garner attention. PIE Funds used to have a much smaller advertisement at the airport with "414% since inception" investment return. I suspect it's the lack of balance & proportion that the FMA's seeking to moderate but at least they are doing that.

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