CFA Institute Study: Harmonize Standards for Mutual Fund Fee and Performance Reporting Across Asia

Categories: Asia Pacific, Standards, Ethics & Regulations (SER)
Retail Funds Report

Since the 2008 financial crisis, regulators across Asia Pacific have focused on improving the regulation of investment product sales — including introducing and standardizing fact sheets and simplified prospectuses that can help investors better understand the investment products. Less attention was paid to periodic reporting of information in quarterly or semi-annual reports to help investors monitor the performance of the fund.

A new study conducted by CFA Institute titled Periodic Reporting for Retail Investment Funds in Asia Pacific: An Investor’s Perspective examines existing regulations relating to disclosure and periodic reporting requirements for retail investment funds in six countries: Australia, China, Hong Kong, India, Japan, and Singapore. The tables below show the level of fees and fund performance disclosure in the countries studied.

Disclosure-of-Fund

In the jurisdictions reviewed, all fees and charges are required to be itemised along with a total expense ratio (TER) that is generally based on the definition adopted by the International Organization of Securities Commissions (IOSCO). Single-figure expense ratios generally allow ease of cost comparisons within and between funds. Historical TERs are not required to be disclosed except in Singapore. Only four of the six jurisdictions required disclosure of transaction costs arising from asset trading. As for fund performance, it is mandatory to disclose historical data on fund performance except in Australia. Although not a requirement, periodic reports in Australia are found to include historical returns.

Fees and charges should be itemised and disclosed both in absolute amounts and in percentages. Percentages allow for easier peer-to-peer comparison, whereas absolute amounts allow investors to understand the effects of economies of scale. A TER that is based on a “standard” calculation methodology would enable fair and easy comparison between investment products. If the methodology is aligned with international standards, international comparisons would be possible. The report recommends that a best practice framework for fees and charges be developed for the industry.

Past performance, while not an indicator of future performance, would give investors a sense of how well the fund had performed over various periods of time. Historical performance should be disclosed both on an annualised and cumulative basis. As for the presentation of fund performance, disclosure of returns  in both gross and net of fees would help illustrate the extent to which fees impact performance.

Going forward, performance presentation could be further enhanced by requiring a common standard for calculating returns, presenting current and past performance, and selecting appropriate benchmarks. Further improvements would include the addition of historical expense ratios to compare trends in the costs of managing the fund, along with examples based on a defined account size to better illustrate the cost impact for an investor; TER calculations should be harmonised for meaningful comparisons within a jurisdiction and across borders.

With increasing cross–border selling of retail funds, standardising disclosures will improve investors’ ability to more accurately compare and assess the spectrum of funds available and make more informed decisions.

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