The United States remains the best overall place for mutual fund investors globally, according to the 2017 Morningstar Global Fund Investor Experience Study.
“The U.S. continues to lead with lower expenses and a strong disclosure regime, both aided by the size and scale of the fund market compared with other countries,” the report says.
The U.S. has held the top spot overall since Morningstar began its survey in 2009.
Despite its overall top rank, Morningstar faults the U.S. for its overlapping regulatory structure, loose regulations on soft dollars and its taxation policy.
“Fund investors in the U.S., unlike those in most other countries in this survey, are assessed capital gains taxes on realized gains within fund portfolios,” the report said.
The study analyzes the open-end retail fund markets in 25 countries across North America, Europe, Asia and Africa, judging on four factors: fees and expenses; regulation/taxation policies; disclosure schemes; and sales practices.
South Africa, Australia and Thailand all jumped to above-average overall grades this year thanks to advances in regulation, disclosure or sales-practices. India ranks up with the U.S. with a top grade for disclosures.
Fund fees and expenses have moved down somewhat from prior years, with “the perennial anchors” of low fees—the United States, Australia and the Netherlands—leading the way.
The U.S. and the Netherlands have asset-weighted median equity fund expense rations of 67 basis points, while Australia is at a still relatively low 1.26 percent.
Canada, at 2.23 percent, and Taiwan, 1.91 percent, were at the bottom of the expense rankings.
For the first time, Morningstar looked at the availability of ETFs globally, although the study was restricted to open-end funds. ETFs are widely available to retail investors in 18 of the 25 markets, and in nine of those markets ETFs are available for a wide range of asset classes, the report said.
Meanwhile, financial firms around the world are experiencing their own DOL-like regulatory shake-ups.
Fifteen of the 25 markets Morningstar studied have moved away from paying commissions, although advisors overall are still paid predominantly through transaction fees and trails.
The Netherlands, the U.K. and Australia have banned commissions, and Singapore has introduced requirements “for advisors to be remunerated on a balanced scorecard approach and not pure sales,” the report said. Within Europe, the Markets in Financial Instruments Directive (MiFID II) will toughen rules and introduce “the concept of independent advice,” Morningstar said, by requiring “a diverse range of financial instruments” and imposing a prohibition on payments by third parties.
“These markets, however, represent the minority,” the report says. “We find that in 15 of the 25 markets, it is rare for investors to pay for advice outside of commission and expenses.”
Across the globe, the fund industry needs to improve communications to investors, Morningstar added. “Our analysts note that it is rare for [fund manager] commentary to be insightful or truly valuable for investors,” the report said.