Inside Money: Tries hard, could do better - NZ funds industry takes home mixed report

In its 2009 Global Fund Investor Experience report, Morningstar plonked the NZ fund industry down the back of the class with a big fat D- stamped on its head. Photo / Thinkstock

In its inaugural 2009 Global Fund Investor Experience report, research house Morningstar plonked the NZ fund industry down the back of the class with a big fat D- stamped on its head.

Those dunce days are now behind us: New Zealand's fund management picked up a passable C+ target="_blank">in the latest of Morningstar's biennial reports.

"New Zealand's grade improvement from previous studies stems from ongoing changes in regulation and disclosure," the Morningstar study says, referring mostly to the recently-introduced Financial Markets Conduct Act (FMC).

It's important to note that the Morningstar report is not a textbook: as the researcher says, the aim is to "spur dialogue about best practices" rather than feed cross-border fund feuds.

Nevertheless, the C+ puts NZ on level pegging with Australia, which scored a B- in the Morningstar rankings. (Under ancient schoolyard lore, the C+ and the B- are rated identical).

Since the last report NZ has improved in two of the four Morningstar categories (disclosure, and fees and expenses), remained static in regulation/tax but slipped backwards in the 'sales and media' rankings.

(Sales and media are actually two different, but related, qualities in the Morningstar report - and sometimes in the real world.)

NZ media does ok, according to Morningstar.

"Articles about managed funds investing [including this one] appear regularly in the New Zealand media," the report says.

But sales is where it's all at.

"The Sales questions go right to the heart of whether a fund investor is going to have a better experience capturing distribution channel structures, prevalence of open architecture systems, fiduciary duties for advisors, conflicts of interest disclosure, and compensation arrangements," Morningstar says. "As witnessed in recent years, these are important elements that can greatly influence the experience of a fund investor."

Morningstar's concern about New Zealand's fund sales was based on its observation that "distribution through financial advisers is losing share to banks with fewer offerings from multiple providers".

Ironically, this may be partly due to the some of the regulation earlier praised by Morningstar: swings and roundabouts.