Singapore ranked 'below average' as investor-friendly fund market; fees and expenses the weak spot

SINGAPORE (Sept 18): Singapore is seen as a place where a wide-ranging array of investment products ranging from shares and bonds to gold and property are widely available and easily accessible.

However, the republic is not as investor-friendly it comes to fees and expenses incurred when buying funds, according to a recent study by Morningstar Inc, the provider of independent investment research.

The city-state has received a “Below Average” in an evaluation of the costs mutual-fund investors incur in the sixth edition of Morningstar’s biennial Global Investor Experience (GIE) report.

In the sixth edition of GIE, Morningstar evaluated the experiences of mutual fund investors in 26 markets across North America, Europe, Asia, and Africa in the following categories— Fees and Expenses, Regulation and Taxation, Disclosures, and Sales.

Using a grading scale of Top, Above Average, Average, Below Average, and Bottom, Morningstar gave Top grades to Australia, the Netherlands, and the US, making them the most investor-friendly markets in terms of fees and expenses. Conversely, Morningstar assigned Bottom grades to Italy and Taiwan, as these fund markets are characterised by high fees and expenses.

Morningstar said contributing negatively to Singapore’s score are its use of front loads, the limited availability of retrocession-free share classes, and the presence of several high asset-weighted median fees compared to the values of available-for-sale funds (see below).

While maximum sales loads are stated in fund prospectuses here, actual sales loads vary depending on the fund distributor. More than 85% of funds, whether domiciled or available for sale in Singapore, report charging front loads, according to Morningstar. Meanwhile, funds with no loads are accessible to Singapore-based investors but make up a small part of retail investors’ assets.

Meanwhile, it is “possible but rare” for investors to pay for advice other than through commissions or retrocessions and most investors pay a financial adviser through retrocessions embedded in the expense ratio.

In addition, while funds without retrocessions are technically registered for sale in Singapore, these are not accessible to the average retail investor given that fund distribution is dominated by intermediaries, notably banks, added Morningstar.

"The Global Investor Experience study aims to empower investors worldwide by promoting dialogue and transparency around global best practices for mutual funds from the perspective of fund shareholders,” says Grant Kennaway, Morningstar’s global practice leader of manager research and co-author of the study.

And the good thing, Kennaway says, is that since the last study in 2017, fees have continued to decline across global markets, thanks to orderly competition, regulatory intervention, and changing practices that have led to the unbundling of advice and sales fees from fund expense ratios in some markets.