Anthony Serhan and Robin Bowerman: Freedom of information

Morningstar’s head of consulting Anthony Serhan will join Vanguard’s head of retail investment Robin Bowerman in a session covering the importance of after-tax returns.

According to Serhan, “the gross returns are useful in a particular context, but one vital piece of the puzzle which hasn’t been present in analysing Australian funds has been the after-tax result”.

With advisers increasingly looking for tax-effective investment strategies for their clients, Serhan hopes that after-tax return reporting will began to occur here.

While Vanguard now distributes after-tax figures on all its products to investors in Australia, Serhan believes the research houses have an important role to play in gathering and disseminating this information.

“I think it’s certainly our role as a research house and as a major provider of research information into the Australian market to make an effort to capture this form of information and get it out to advisers,” he says.

“We’ve been doing it in the US for over 10 years, and it’s the sort of thing we would like to see happen in Australia.”

In the US, after-tax reporting is now a mandatory requirement, and all fund managers must include this information in the offer documents issued to investors.

“If we can get on the front foot here and actually set a standard, I think the industry has a great opportunity to work out what is the best way to actually present this information and how it can be used, before somebody like ASIC comes along and mandates it,” Serhan adds.

Morningstar is currently in the process of creating a database that will hold all after-tax return figures for Australian funds. This has been prompted by adviser requests.

“Our experience is that a large part of what advisers are doing with their clients is looking at what they are left with in the hand. So they are quite cognisant of the impact tax can have on a client’s end outcome,” he explains.

“And what they have consistently told us is that they would love to have some more information to help them when they are putting this stuff together.”

Serhan notes that taxation on investment funds is not necessarily going to be of interest to everybody, saying that retirees with a pool of assets supporting a pension, where the pool of assets isn’t taxable at all, will not find this type of information useful.

But he says individuals in the wealth accumulation stage could benefit enormously.

“If you’re talking about somebody young who’s out there gathering assets and goes into a margin lending program, they are going to be very interested in the level of what’s going to hit their tax bill at the end of the year, particularly where they are leveraging up their exposure.

“They would want to know whether there is a realistic expectation that they are going to be hit with a large capital gains bill from the fund they are investing in.”