Morningstar Announces Findings from Fourth Global Fund Investor Experience Report: United Kingdom Scores B+ Grade

Morningstar UK Ltd., a subsidiary of Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today released its biannual Global Fund Investor Experience report, which assesses the experiences of mutual fund investors in 25 countries across North America, Europe, Asia, and Africa. The UK scored a grade of B+ in the report. Morningstar

Editorial Team
June 9, 2015
5 minutes

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Morningstar evaluated countries in four categories that are weighted to calculate the overall grade: Regulation and Taxation, Disclosure, Fees and Expenses, and Sales and Media. Morningstar researchers generally favour active fund regulation; a low investor tax burden; more disclosure; lower fund fees; a varied fund distribution system; and local news media that helps to educate investors about their choices. Morningstar assigned countries a letter grade for each of the four categories and used the underlying scores to produce an overall country grade. The analysis was based on information from publicly available sources, Morningstar data, and Morningstar experts located in the company’s offices around the world.

Christopher Traulsen, Morningstar’s Director of Manager Research, EMEA, said, “Our mission at Morningstar is to help investors reach their financial goals. The goal of our Global Fund Investor Experience report is to improve the investor experience by examining the treatment of mutual fund shareholders in various countries to spur dialogue about best practices. Every market we examined has areas for improvement, and we hope our research about the experience of fund investors worldwide will help serve as a catalyst for positive change.”

The overall country grades for 2015 are below, from highest to lowest and then in alphabetical order:
Korea: A
United States: A
The Netherlands: A-
Taiwan: A-
United Kingdom: B+
Sweden: B
Australia: B-
Denmark: B-
Finland: B-
Norway: B-
Switzerland: B-
Canada: C+
Germany: C+
India: C+
New Zealand: C+
Thailand: C+
Belgium: C
France: C
Hong Kong: C
Singapore: C
South Africa: C
Spain: C
Italy: C-
Japan: C-
*China: D+

Key findings for the UK grade include:

The UK earned an overall grade of B+, which is above average and an improvement from the country’s B- grade in 2013.
In the area of Fees and Expenses, the UK saw some improvement on its 2013 category grade, with ongoing charges falling in most asset classes, and more assets moving into funds with unbundled pricing structures.
The UK continues to lead internationally in the Sales and Media category. UK investors benefit from a full spectrum of sales channels, with an estimated 80 percent of UK fund sales transacting through open-architecture distribution channels. The requirement upon advisers to consider all comparable investments when making an investment recommendation provides investors protection that is stronger than almost any other country evaluated in the report.
On Regulation and Taxation, the UK scored slightly above average and added marginal improvement to its 2013 category grade. Deferring capital gains taxes until sale of shares, large annual capital gains exemption, and relatively low tax rates on dividends and interest contribute to UK investors paying less in taxes than investors in many other countries.

New this year, Morningstar incorporated The World Press Freedom Index in its assessment of media for the Sales and Media category. Reporters Without Borders, an international nonprofit organization, publishes the index annually to measure the freedom of information in 180 countries. Morningstar also added a quantitative analysis about the frequency of portfolio reporting in the Disclosure category, and included a first-time review of the fund investor experience in Finland.

Additional key findings of the 2015 report include:

Korea received an A this year because of its improved sales practices, up from a B+ in 2013, and is the only other country aside from the United States to achieve the top grade.
The United States garnered the highest score for the fourth time with a top grade of A. While the United States boasts relatively low expenses and strong disclosure, its Sales and Media category grade is average.
The Netherlands rose to an A- grade in 2015, compared with a B in 2013, improving in the areas of Fees and Expenses and Sales and Media assisted by a newly implemented ban on advisor commissions.
Finland received a grade of B-, reflecting consistent practices that have developed from pan-European regulations.
China received the lowest grade of a D+ because of high fees, limitations on overseas investing, and restrictions on foreign-domiciled funds.*
Since the 2013 study, regulators in New Zealand introduced semiannual portfolio holdings disclosure, while Thailand plans to move from semiannual to quarterly disclosure. Australia is now the only market that does not have portfolio holdings disclosure requirements. The global fund industry is generally ahead of regulatory requirements, with monthly holdings releases becoming common.
Nearly every market has enacted new or updated regulations over the past two years, which shows active engagement by regulators in the areas Morningstar evaluates in the report.
In the United States, Australia, South Africa, and The Netherlands, ongoing fund fees are typically unbundled, which decreases reported fund fees. However, if investors are paying for both advice and an administration platform, the total cost of owning a fund could be an additional 1.0 to 1.5 percent.
In 22 of the 25 countries evaluated, banks and insurance companies are named as one of the dominant fund sales channels. The next most common channel, cited in seven countries, is the independent advisor.