by Kevin Hague
Morningstar’s recent report on the fund management industry makes for some interesting reading. They rank us dead last in a streamed class of 16 OECD nations. Of particular note they remark that:
- New Zealand does not have adequate mandatory disclosure requirements;
- Our Securities Commission is not sufficiently resourced and;
- Our taxation regime does not encourage long-term investing.
The report is the first of what will inevitably turn into a deluge of recommendations for reform of an industry that recently self-destructed. It’s in harmony with some of the key themes to have emerged already from abroad-enhanced disclosure, stronger regulation, and better market discipline.
What has been our Government’s response to date to the financial crisis? The Securities Disclosure & Financial Advisers Amendment Bill. Simon Power proudly introduced the Bill to the House as “a response to the global financial crisis.” But this Bill actually lessens the need for full financial disclosure in many cases. Moreover, the Bill was drafted and consulted upon in 2006, some time before the collapse of the world’s financial markets. This is law for a whole different era.
The Greens will be moving amendments to this legislation in the House if the opportunity arises. The recommendations within the Morningstar report which the Greens support will lead to much greater transparency and consistency of disclosure in the financial sector. Such measures might include:
- Presenting information in prospectuses about fees and expenses in a standardised format to allow for easy comparison between different financial products.
- Setting up a centralised independent web site to house disclosure documents.
- Requiring complete disclosure of portfolio holdings of mutual funds so potential investors can see where the risks lie.
We’re talking about small practical measures that a well-intentioned Government might actually be implementing as a strategic response to the global financial crisis. But you could say the same about the other obvious looming crisis—climate change—and begin to see this Government seems to have their mind on something else altogether.
Futher comment from me: http://www.greens.org.nz/node/21195
Published in Economy, Work, & Welfare | THE ISSUES by Kevin Hague on Thu, May 21st, 2009
Tags: financial crisis, financial reform, Kevin Hague, morningstar, Securities Disclosure & Financial Advisers Amendment Bill
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on the trolls and those who are unable to keep on topic
Good to see someone thinking about changes that need to happen in the new economic environmment.
While National bemoan the crisis and the financial markets role in it their thinking does not seem to have changed at all in response to it – its just more of the same and she’ll be right from them
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Personally, I am all for greater discolsure, but why do we need more regulation?
As far as the amendments go, they look good as they are increasing the amount of information out there. However, the second one “Setting up a centralised independent web site to house disclosure documents” is unnecessary, because websites comparing products already exist, and community supported websites are likely to be much more effective and cheaper than centralised, government mandated websites.
One of the misfeatues of the current industry is the high level of fees and charges. A small fund following stock exchange indexes could outperform most funds if fees were kept low. One of the reasons we don’t see more competition is the barriers to entry, which are in large due to regulation. More regulation will simply entrench the current players who will continue to be the winners, taking large fees from investors.
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When I came to NZ a few years ago, I was considering investing some funds in nz securities – after a short time and some investigation/talking to ‘advisors’ & others, I did not invest a cent here. Far too dodgy an industry I concluded – events have proven my assessment correct I conclude.
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Good point, alexking. Regulation is typically reactive (i.e. too late) and stifling of the positive aspects to free markets. Better disclosure requirements and transparency are a useful alternative. But does greater disclosure help anyone but the sophisticated investor?
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