A fund manager says most retail investors who are paying performance fees are being short-changed and the industry needs to pick up its game under greater scrutiny by the regulator.
Performance fees reward fund managers for exceeding a specified benchmark, and are paid on top of a base management fee.
Research house Morningstar released a paper on performance fees last year and the Financial Markets Authority has signalled it's concerned about whether the fees are reasonable.
Harbour Asset Management has rejigged its own fund to meet best practice standards and conducted its own review of 12 local unnamed Australasian equity funds, comparing them against five criteria.
These include the overall fees, the benchmark used, and a so-called High Water Mark, which captures whether past underperformance is recouped before the fee kicks in.
Harbour Asset Management's chief operating officer Jody Kaye says New Zealand performed poorly.
He saidt that in the benchmark used, only two of the 12 firms had an equity benchmark, while the others had cash or cash plus.
Mr Kaye says investors need to understand the structure of these fees and how they are applied, and financial advisers can help by focusing on the fees and reflecting that in their rating process.
