NZ Dunce of the World

New Zealand was ranked as the worst country in a global study of investor-friendly practices by Morningstar Fund Research. The survey looked at how countries safeguard the rights of fund investors.

New Zealand’s score of D- was the worst of all 16 countries surveyed, behind such countries as China, Taiwan, Italy, Hong Kong and Spain.

This effectively makes New Zealand the world dunce when it comes to protecting investors, echoing what EUFA has been saying for years.

Morningstar’s survey was based on criteria of investor protection, transparency, fees, taxation, and investment choices.

Investor Protection
Morningstar said, “New Zealand’s grade in the area of investor protection is D-minus, and the country has the lowest score among all countries in our study.”

The report was highly critical of New Zealand for having an ineffectual Securities Commission.

Morningstar also noted that New Zealand law requires custodians and fund managers to be different entities, but observed that they can be affiliated firms both owned by the same parent, thus lacking complete independence.

Transparency
New Zealand also scored a D-minus for transparency in prospectus and shareholder reports, the lowest score among all countries in the study.

“Sales contests and favoured compensation of particular funds imply that the fund industry’s sales force lacks independence and is more likely to promote funds for self-interest rather than the best interest of the investor,” Morningstar says.

Morningstar researchers were also critical of New Zealand for not forcing mutual funds to provide a full disclosure of portfolio holdings.

“Australia and New Zealand are the only countries in our study that do not require portfolio holdings disclosure. Where the regulation is lacking, the mutual fund industry does not make up for it with voluntary disclosure,” Morningstar says.

Taxation
Morningstar also handed out a D-minus for taxation, saying New Zealand’s dividend and capital gains taxes are high, and there is no tax incentive for long term investing.

Overall

The USA topped the survey with the only A rating:

United States: A
China: B+
Italy: B
Japan: B
Netherlands: B
Taiwan: B
Canada: B-
France: C+
Switzerland: C+
United Kingdom: C+
Australia: C
Singapore: C
Germany: C-
Hong Kong: C-
Spain: D
New Zealand: D-
If you would like to read Morningstar’s full report, click link text.
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