Morningstar after-tax reports to expose bad practices

Morningstar is on track to release Australia’s first comprehensive after-tax fund performance report by the end of this year, according to Anthony Serhan, the researcher’s head of consulting.

While other researcher houses have flirted with after-tax reporting in the past, Morningstar will be the first to issue such reports in an ongoing fashion. Serhan said the reporting of after-tax performance was another step in the direction of transparency for the industry. “Without doing this there are practices in our industry which will live on and are bad for investors,” he said. “We want to get a measure out there so you can use it to calculate other ratios for funds.” Serhan said he had most of the required information to calculate the data but still needed to collect some final numbers from funds managers. The data will be published monthly and the researcher is initially targeting a three-year history. It will only use the highest nominal tax rate for simplification purposes but tools incorporating all tax rates may be made available over time. Morningstar first flagged its intentions to calculate the after-tax data in November 2004 shortly after Vanguard Investment started releasing its after-tax returns. Vanguard is currently the only manager releasing the information in Australia but the practice is mandatory for mutual funds in the US. Robin Bowerman, Vanguard head of retail, called for financial planners to start pressuring funds managers for after-tax data at last week’s FPA conference on the Gold Coast. “Researchers like Morningstar are struggling to get the data. A bit of a bottom-up push from the [financial planning] industry certainly would be welcome. At the moment there are not too many funds managers keen to follow us,” he said. Serhan said other research companies would probably start publishing similar after-tax data soon.