Taskforce just the start for industry

The research house that slammed New Zealand's fund management industry with a D-rating says recommendations by the Capital Markets Development Taskforce are a good start but still won't bring New Zealand in line with the rest of the world.

The taskforce released its report last Wednesday with 60 recommendations including making fund managers directly responsible for putting investors' interests first, making fees and returns clearer and comparable and greater transparency in what fund managers actually invest.

Morningstar communications manager Philip Gray said it welcomed some of the suggestions made in the report.

"But it's still not enough to bring New Zealand in line with the managed funds industry globally."

In May Morningstar rated New Zealand the worst out of 16 countries for its use of best practice in fund management.

The report looked at regulation, disclosure and transparency around managed funds and was particularly critical of New Zealand's lack of openness over fees and telling investors exactly what they were investing in.

Last week the taskforce recommended fund managers provide regular access to a breakdown of their funds to give investors a better idea of how much of their money is invested in shares versus cash and fixed interest investments.

But Gray said most Kiwi fund managers already did this and what investors really needed was a comprehensive breakdown of exactly which companies the fund manager was investing in.

"Broad labels can often be misleading," he said. "If investors knew exactly what securities their money was going into they could be more aware of the risks."

Gray said unclear labelling of assets had been an issue during the recent financial melt-down with some funds calling themselves cash when they contained more complicated assets.

Investors had expected they could sell up easily because of the cash name but when the markets froze they found their money was actually tied up in longer-dated cash products which could not be easily sold.

Gray said a comprehensive breakdown would enable investors and financial advisers to know if the fund would match its marketing label.

Fund managers have long deplored giving exact details of what they invest in because they say doing that would stop them from having an advantage over competitors and allow others to copy them.

But Gray said the breakdown would not need to be given in real time and fund managers in other countries often gave the details with a one- or two-month delay.

"Other markets where there is full disclosure have not seen the collapse of the fund management industry."