“What happens when we leave these trustees alone in the dark with our money?” counsel assisting the Royal Commission, Michael Hodge, QC

At the heart of the challenge facing the industry today is rebuilding trust.

Trust is the foundation of every relationship. None more so than between financial adviser and client. Handing over details of your financial situation, your goals and discussing your personal family matters in detail is daunting for many. The development of that trusted relationship and rapport requires the adviser to demonstrate integrity and value at every step; and core to this is a willingness to be unquestionably open.

Prospective clients will naturally shy away where they feel something is being held back – hidden fees, perceived conflicts or other forms of misalignment. Everything must be on the table.

Investment product is no different. The same important attributes apply for investors to trust investments being recommended – absolute clarity over how and where their money is deployed, validation of cost relative to comparable alternatives, and a clear demonstration of stewardship and investment track record.

So, it might surprise you to know that, until recently, the Australian funds management industry has been one of the least transparent relative to other developed markets in terms of disclosing where and how investors’ money is deployed. And this is something that we’re on a mission to change – for the betterment of investors and the industry.

Beyond Top 10 Holdings to Full Transparency

Morningstar completed the fifth edition of the Morningstar Global Fund Investor Experience (GFIE) at the end of last year. As part of this study, 6 out of 25 countries received the lowest grade of ‘Below Average’ for disclosure and Australia was one of them. This is because Australia is the last country in this study without any form of regulated portfolio disclosure.

In response, Morningstar has been spearheading a campaign with asset managers and the industry to move beyond our current limited disclosure of ‘top 10 holdings’ to voluntary full portfolio holdings disclosure. This campaign has to date resulted in 62% or $380 billion of fund portfolio assets under management provided to Morningstar now being disclosed in full – a significant achievement and one which demonstrates the industry can self-regulate for the greater good. However, we won’t settle until we reach 100% transparency of portfolios.

For advisers, constructing models and building portfolios, full portfolio holdings disclosure of managed funds makes for more meaningful analysis, which will lead to improved outcomes for your clients.

Full portfolio transparency will give you a better understanding of what clients own – is the label on the packet true to its description? Do the ingredients align with your client’s values and beliefs? These insights lay the foundation for more meaningful and personal conversations with your clients around why you’ve made certain investment decisions on their behalf – which is a key element to demonstrating the ongoing value of your advice.

Beyond the benefits for investors and advisers, full portfolio transparency will also enable fund managers to meet the shift in investor preferences towards more control and clarity over how their money is being invested. This shift is evidenced by the continued growth of transparent investment vehicles like ETFs and Managed Accounts.

Empower Investors. Regain Trust. 

As a provider of investment information and research, Morningstar’s guiding light as we develop databases, analytics and research is our mission – “….to create great products that help investors reach their financial goals.”

We aim to simplify the complex, to whittle down endless lists of investments, to enable comparability across products and portfolios and to educate. Transparency is key to achieving this aim. We take a bottoms-up approach to our analysis, which requires granular data. We aim to judge every investment on its merit – what it owns, how much it costs and how it fits into a holistic portfolio – based on our analysis, not the representations of the product provider.

To regain trust, to further personalise your advice and to enable a strong and thriving advice industry into the future, full transparency and disclosure must be an area of focus for all. After all, when investors are empowered through education and transparency, everyone wins!

To learn more about our transparency movement, and how you can leverage it in your own practice, please visit our Never In the Dark site today.