ISI Sets New Standard for the Disclosure of Fees and Expenses

Thursday 25 Nov 10 9:17pm
For the Attention of the Business Editor

Turmoil in global and local financial markets over the last two years has created uncertainty about savings and investing, led to an erosion of wealth for many New Zealand’s savers and investors, and resulted in a loss of trust in financial markets in general.

 As a result, a key Government objective has been to restore trust and confidence in New Zealand’s financial markets and they have been putting structures in place to provide the New Zealand with greater disclosure and certainty.

The Investment Savings and Insurance Association (ISI) has also recognised a need to increase public confidence in the financial services industry, and has been working hard over this period to develop new industry standards that will support this.

Sean Carroll, Chairman of ISI says this work has identified a number of areas for improvement.  “ISI is developing a series of measures that aim to create greater transparency and disclosure for investors, enabling them to make more accurate comparisons between issuers and investment funds, and make better investment decisions as a result” says Mr Carroll.

The first significant change will take effect from 1 April 2011, with a new Standard that will create consistency in how the on-going fees and recovered expenses of an unlisted collective investment will be reported to retail investors.

Mr Carroll says that development of the new industry standard began at the end of 2009 and involved significant input from many different stakeholder groups.  “We needed to deliver a process that provides investors with valuable information without imposing extra costs which investors would ultimately end up paying for in higher fees.  We’re confident we’ve managed to achieve an excellent result for everyone.”

The new format will enable investors to make better comparisons between investment products by providing consistency in terms of both layout and definitions.  It will also introduce the ‘Total Expense Ratio’ (TER) model that is followed in Europe and North America.  “We believe the new Standard will be amongst the best of its kind internationally,” says Mr Carroll.

“It will require ISI members to calculate and present their fees and expenses in a standardised manner.  This will enable investors to assess the impact of fees and expenses on their returns and compare between providers,” he says.

A key factor of the Standard is the requirement for an illustration of how the fees and charges apply to a lump sum investment of $10,000 and an annual contribution of $1,000.  Potential investors can immediately see the effect of the fees and charges in operation.

While the new Standard will initially be compulsory for ISI members only, Mr Carroll says ISI is keen for it to become the benchmark for the entire funds management industry.  “We are looking forward to working closely with MED officials to develop such an industry-wide standard.”

Further initiatives to improve disclosure and reporting standards for managed funds are planned for 2011 and 2012, including the standardisation of investment performance reporting and the disclosure of portfolio holdings within a fund, and the separation and disclosure of adviser remuneration and management fees.

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