Funds management industry gets pass mark, but more could be done

The Australian funds management industry lags behind global best practice when it comes to levels of disclosure within portfolios, while investors are subject to some of the highest investment taxes in the world. 

However, investor protection and fees and expenses related to managed funds are world standard, according to a Global Fund Investor Experience Report from Morningstar. 

The research house assessed the experiences of investors in 24 countries in North America, Europe, Asia, and Africa, looking at the areas of regulation and taxation, disclosure, fees and expenses, and sales and media. Each country was rated from A to F in the four areas, with these ratings combined into an overall grade. 

As a result of this process Australia was graded as average with a C+, trailing the United Kingdom, Germany and China on B- but ahead of Japan, Italy and South Africa. The only nation to be graded an A was the United States. 

Morningstar said the reason for Australia’s ranking was that while its low costs and good sales practices were advantages, weak disclosure practices and high taxes were issues that still needed to be addressed. 

In particular Morningstar noted that investors do not have access to portfolio holdings - making Australia the only country in the report without any form of portfolio disclosure.  

Product disclosure statements also lacked standardised returns, with investment strategies and fund risks poorly described, as was portfolio manager information. 

A further concern was that investors were required to pay capital gains taxes annually, rather than defer them and accumulate the gains in the fund unit price .This was offset to an extent by Australian equity, allocation, and fixed-income funds having the second-lowest Total Expense Ratio after the United States. 

The wide variety and open-architecture of platforms which surround fund sales was regarded by Morningstar as positive particularly, given that the fiduciary standards under Future of Financial Advice regulations are some of the strongest in the world. 

Morningstar stated the report was “not a commentary on a country’s managed funds industry, as there are many factors besides industry behaviour that can affect an investor’s experience”. 

“The aim of the report is to encourage dialogue about global best practices for managed funds from the perspective of fund investors.”