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UK Investing Experience Comes Up Short

GLOBAL INVESTOR SURVEY: The experience of fund investing in the UK fails to meet the standards set by the US, Netherlands and even Korea, according to a new Morningstar report

Holly Cook 15 May, 2013 | 11:27AM

The experience of the average fund investor in the UK has improved in recent years but it remains worse than that of investors in the Uninted States, Netherlands and even Korea.

Fees remain a relative weak spot for UK funds, according to the Morningstar report.

The 2013 Global Fund Investor Experience report from Morningstar, which assesses the experiences of fund investors in 24 countries across North America, Europe, Asia and Africa, awarded the UK a B- Grade in the 2013 report. In the 2011 report, the UK earned a C+ grade, which was unchanged from its 2009 rating. 

Morningstar's evaluation of investor-friendly practices in fund markets worldwide identified the United States as the best market for fund investors based on criteria such as investor protection, transparency, fees, taxation and investment distribution, while South Africa scored the worst. This year's report also includes first-time reviews of fund investor experiences in Korea and Denmark.

The UK's slight improvement was in part fuelled by high marks for the dominance of open-architecture distribution in the market, giving most fund investors a wide array of choice. It was also noted that the Retail Distribution Review should ensure that investors have more choice across different vehicle types. The UK's tax regime for fund investors, specifically with respect to capital gains, was also cited as being better than average.

However, the move in the UK away from a simplified fund prospectus to the new KIID has detracted from the general fund investing experience in the UK, according to Morningstar's assessment. The 2013 report found that fees remained a relative weak spot for UK funds, though it was noted that this is hoped to improve in the wake of the Retail Distribution Review.

The 24 countries assessed earned the following awards:

United States:  A
Korea:  B+
Netherlands:  B
Singapore:  B
Taiwan:  B
Thailand:  B
China:  B-
Denmark:  B-
Germany:  B-
India:  B-
Norway:  B-
Spain:  B-
Sweden: B-
Switzerland:  B-
United Kingdom:  B-
Australia:  C+
Belgium:  C+
Canada:  C+
France:  C+
Italy:  C+
Japan:  C
Hong Kong:  C-
New Zealand:  C-
South Africa:  D 

Among the key findings of the study: 

  • Bans on adviser commissions are spreading around the world. In the UK, the Retail Distribution Review has already brought such a ban into effect, while similar moves are underway in Australia and the Netherlands.
  • While the US and European fund markets are roughly similar in size, US investors pay significantly lower fees than European investors.
  • New Zealand showed the largest improvement from the 2011 study rising to a C- from a D- because of positive regulatory changes and an encouraging expansion of disclosure requirements.
  • Fund companies in most countries continue to treat the names of portfolio managers as trade secrets, leaving investors no way to determine who is responsible for a fund’' success or failure.
  • Australia and New Zealand do not require funds to publicly disclose full portfolio holdings, while France, South Africa, Korea, and the UK only disclose holdings to current owners.

Read the full 2013 report here

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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