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

Morningstar researchers evaluated and scored countries in four categories: regulation and taxation, disclosure, fees and expenses, and sales and media, based on a combination of factual research and interviews with Morningstar analysts in each country.

Each country was then graded on a scale from A to F for each of the four topics, and these grades were then combined to form an overall grade. The report is 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.

“We launched the first Global Fund Investor Experience Report in 2009 to examine the treatment of managed fund investors in 16 countries, with the goal of advancing a dialogue about best practices worldwide. Since that time, we’ve had numerous conversations with regulators and fund managers in multiple countries about their existing policies and ways to improve,” said Morningstar Australasia Chief Executive Officer Anthony Serhan.

“Working with our analysts around the world, we expanded our survey to 24 countries this year. We hope our findings will help fund managers and regulators around the globe continue to focus on improving the environment for investors.”

Australia
Australia scored a C+. Australian investors enjoy low costs and favourable sales practices from a global perspective, but disclosure practices are comparatively weak and tax costs relatively high.

Australia fares very well with respect to fees and expenses. Australian share, multi-sector, and fixed income funds are some of the least expensive globally.

Australia also fares well in the area of sales and media, benefitting from open architecture platforms and a variety of sales channels. The Future of Financial Advice (FOFA) regulations place a fiduciary standard requiring financial advisers to place investors’ interests ahead of their own. This protection is stronger than found in most of the world.

Australia is the last country in this report without any form of mandated, periodic portfolio holdings disclosure presently or in proposed regulations for managed funds. With global best practices being mandatory quarterly disclosure, Australia is very far from the mark. There have been positive steps, however, with voluntary disclosure standards well-advanced and a mandated requirement due to be introduced under the MySuper regulations.

Australia’s product disclosure statement misses some marks as a simplified prospectus. Nowhere in the disclosure is portfolio manager information available. The document also lacks standardised returns, and poorly describes investment strategy and risks.

Australian managed fund investors suffer some of the highest investment taxes of any country in the report. Australia is one of only a handful of countries in which capital gains are passed through to fund investors annually, rather than deferred, and accumulated in the gains in the fund unit price. Fund investors also pay consumption taxes on the investment management service.

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