The Morningstar view on KiwiSaver reporting

Regulation for KiwiSaver schemes should place investors at the fore and not be led by product providers, and payments to advisers at the cost of investors should be disclosed, according to Morningstar.

In its submission to the Ministry of Economic Development (MED) Periodic Reporting Regulations for Retail KiwiSaver Schemes Discussion Paper Morningstar also said improved disclosure would encourage greater investment in managed funds.

“We believe that mandatory, periodic disclosure of comprehensive portfolio holdings would increase equity between managed fund investors and encourage greater engagement with retirement savings and pooled investment vehicles more generally,” the company said.

Morningstar also advocated full disclosure of any fees paid to financial advisers, however, “if the payment to advisers is being paid by the fund manager then the information is not so pertinent. Information about the sales practices of a scheme through an adviser channel would be interesting information, but it doesn’t help the end investor make a more informed decision.”

Morningstar also outlined its responses to  questions on a number of issues  raised by the MED paper.

It agreed that any costs deducted from a fund should be disclosed and that there should be a prescribed set of terms for each fee type.

On the issue of performance fees Morningstar agrees with the MED view that they should be disclosed, saying, “There is no rationale or justification for not disclosing performance fees,” it also advocates a wider disclosure regime.

“Simply disclosing the performance fee is not enough, though. Morningstar believes that the terms of the performance fee should be disclosed as well as the fee itself.”

The submission says fund managers should also disclose performance fee quantum, benchmark, hurdle, high watermark, reset period and crystallisation period.

Fuller disclosure of fees would create simplicity, uniformity and comparability and “show the investor the impact of the performance fee on their return, and provide at least a very good approximate basis for comparison.”

The submission also advocates mandatory full portfolio holdings disclosure, noting that despite fund management industry criticism, “Morningstar is yet to find a country where mandatory portfolio holdings disclosure has been harmful to capital market development.”

On wider regulation while Morningstar sees GIPS as the ‘gold standard’ for the calculation and presentation of performance figures, the company said it remains comfortable with the Investment Savings and Insurance Association’s approach.

“GIPS is by and large a strategy or asset class institutional approach to performance reporting not really appropriate to the New Zealand retail market.”

OnePath walks away with KiwiSaver award

OnePath has seen off competition from Fisher Funds and Milford Asset Management to be named Morningstar KiwiSaver Fund Manager of the Year.

The OnePath general manager funds, David Boyle, said he was delighted with the win.

“It’s a fantastic moment in the sense that the OnePath brand has been recognised with this award, particularly given the criteria that Morningstar used, which was quite extensive, particularly from a customer experience perspective.”

The Morningstar Australasia co-head of fund research, Chris Douglas, said the award winners, “have all shown themselves to be outstanding stewards of their investors’ capital.”

Morningstar praised OnePath’s transparent KiwiSaver options, broad selection of fee choices and strong performances.

“Morningstar’s analysts consider OnePath the best all-round solution for New Zealander’s retirement savings needs,” the company said.

Boyle said the wider criteria used to assess the award and the fact that KiwiSaver is more of a mass-market product made their success especially pleasing.

He said that during the awards ceremony Douglas said Morningstar had, “extended the criteria to include not only the performance of the scheme, but the transparency of fees, the quality of regular updates, the education material, the website, the tools and content on that website to assist KiwiSaver members with information and transparency, [these] were key factors.”

While Boyle stressed the importance of the wider factors around the OnePath offering, he also acknowledged the importance of fund performance.

“We take performance as a given, we have to deliver a level of performance and it needs to be consistent and consistently good relative to peers and the market. That’s what we strive for as a funds management provider as well as a KiwiSaver provider,” he said.