Forsyth Barr drops performance fees on equities funds in drive for simplicity

Forsyth Barr has dropped its fees for outperforming on its management of two equities funds in a bid to simplify things for investors.

The 80-year old Dunedin-based brokerage decided to stop charging performance fees on its New Zealand equities and Australian equities funds if they beat the annual 10% return hurdle and removed the ability to charge those types of fees, amendments to the prospectuses show. Forsyth Barr made a number of changes to the way it manages funds as part of the new licensing regime for fund managers, which are expected to come into effect from September 12.

Sweeping changes to securities law in the form of the Financial Markets Conduct Act prompted Forsyth Barr to go through its prospectuses and trust deeds, which had typically been rolled over in the past decade, managing director Neil Paviour-Smith told BusinessDesk.

"A key thrust of the Financial Markets Conduct Act is to try to make it simpler for investors to understand what they're investing in, the key risks and features and so on," Mr Paviour-Smith said. "In the end, it just became simpler to make a decision and say ' let's just get rid of it'."

Accounts for Forsyth Barr Investment Management, which manages its KiwiSaver and investment funds, show the brokerage generated management fees of about $982,000 in the year ended March 31. The firm's funds management units were amalgamated into one entity in February last year.

Mr Paviour-Smith said the equities funds were Forsyth Barr's only funds that attracted performance fees and that revenue "wasn't a critical component of how our company can survive" in contrast to other fund managers reliant on that income.

Other amendments to the funds' prospectuses include a more detailed trust deed to meet new rules regulating funds management, including how Forsyth Barr can vary the terms of the funds, deal with liquidity issues, or manage the winding up of a fund.

Mr Paviour-Smith said the licensing regime and disclosure rules aim to make it clearer for investors but it was too soon to tell whether the raft of changes to the financial services sector in recent years was making life easier for the public.

"Alongside all of this change you've also had some very complicating factors for clients and investors," he said. "There is a whole range of noise around financial services generally that has created an impression that it's got a whole more complicated and difficult. Within that noise, the positive changes intended by the FMC Act in regard to offer documents has probably been lost a little bit."

Still, Mr Paviour-Smith is optimistic about the outlook for financial services, which he says will benefit from an ageing demographic that has accrued wealth through their working lives.

"People are getting older, wealthier, have more of a need to save and are seeking more financial advice," he said. "They're getting more sophisticated in terms of awareness of diversifying savings away from just property. The fundamentals for our industry are really exciting."

(BusinessDesk)

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