Morningstar Magazine - October/November 2017 - 8

Dispatches

Shining a Light on Costs
Regulators globally
are pushing for more
transparency.

Phillips Curve
10

Triple-Down Economics

12

Do Index Investors Deserve Perdition?

LETTER FROM THE BOARD

Anthony Serhan

Since 2009, Morningstar has published its
biannual Global Fund Investor Experience study.
The report evaluates the experience fund
investors have in countries around the world based
on criteria such as regulation, disclosure, fees,
and sales. We are preparing to release the
fifth Global Fund Investor Experience study this fall.
It's clear from this research that the pace
of regulation is increasing. It's also apparent
that countries have their own ideas of
the best ways to address these issues. Regulators
are taking different approaches to tackle
similar problems.

Ivory Towers

The Old Squirrel
17

The Value of Liquidity

18

Policy
HSA Participants Need Advice
Behavior Gap

20

Sleep on It

23

Americas
Greater Europe
Australia & New Zealand

Global Briefs
28
33

If you have worked in the asset-management
or wealth-management businesses over the past
15 years, you have experienced a regulatory
revolution that is striking in both its breadth and
its ferocity. As with any revolution, it involves
politics, societal change, and money.
While you have no doubt felt the impact of
regulation in your local market, what you might
not realize is the global nature of these
regulatory changes.
There are many reasons for this increasing
level of regulation around the world, but I think
they come down to a few key points:
3 Considerable industry growth, helped by rising
markets and increased savings, has put a
spotlight on the importance of the investment
industry and the influence it has.
3 In most markets, government policy has
facilitated increased savings, whether it be
by tax incentives, compulsion, or both.
With politicians laying the tracks for growth,
it makes sense that they also want to influence
their direction.
3 Funding the retirement needs of a growing
share of the population in the decades
to come remains one of the biggest financial
challenges for countries across the globe.
It is a financial challenge that will become a
political one. Governments have a vested interest
in ensuring the financial-services industry is
both a safe pair of hands for retirement savings
and a cost-effective manager of those assets.

8

Morningstar October/November 2017

Fiduciary and Suitability

In the United States, the Department of Labor's
Conflict of Interest Rule raised many issues
locally, but from a global perspective, one that
stands out to us is the many mechanisms
and organizations involved in regulating the U.S.
finance industry. In most markets in our study,
regulation and enforcement typically fall
under one organization. It is also noteworthy that
the fiduciary rule for financial advisors came
from the Labor Department and not from a
financial regulator such as the SEC, which stands
in contrast to the way other markets have
introduced similar requirements.
Still, the U.S. is among only a handful of countries
that have attempted to broaden the reach of
fiduciary duty standards. Suitability or "reasonable
basis" standards are far more common globally
when it comes to the provision of advice.
Japan is trying to improve fiduciary standards
by moving its industry toward a principles-based
approach, as opposed to a stricter rulesbased approach. The Financial Services Agency
of Japan released a draft of its "Principles
for Customer-Oriented Business Conduct"
in early 2017, and it is consulting with the industry
on how best to improve industry standards.
Australia set a rules-based "best interest"
standard when it banned commissions and other
forms of conflict-of-interest payments in 2013.
These rules did not cover insurance policies at the
time, but these have become an area of focus
for regulators in recent years.
Table of Contents for the Digital Edition of Morningstar Magazine - October/November 2017
