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© 2011 Morningstar, Inc. All rights reserved.

Global Fund Investor Experience 2013

@ Trends Finance Day 2013

Ben Granjé

Sales Director

Morningstar Benelux

Request the full report via Benelux.Sales@Morningstar.com

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Who We Serve Worldwide

AdvisorsIndividualsInstitutions

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How we serve all aspects of the industry

Morningstar:

× Collect and validate Investment data

× Categorise securities within peer groups

× Distribute information and analysis

× Educate investors

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How We Serve Our Clients

Morningstar

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foundation…

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products and

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…that help clients

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Accurate, Timely, Complete Data

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Trusted Brand

Brand awareness and attribute information from 2010 Morningstar U.S. brand study. A third-party research firm conducted more than 1,300

telephone interviews with Morningstar clients and non-clients across all core audiences.

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× Evaluates the experiences of mutual fund investors across 24 countries in four categories:

� Regulation and Taxation (25% of overall grade)

� Information Disclosure (30% of overall grade)

� Fees and Expenses (30% of overall grade)

� Sales and Media (15% of overall grade)

× Goal is to encourage a dialogue about global best practices for funds from the perspective of fund investors.

× Information gathered from available public data and from Morningstar analysts.

× Higher weighting given to questions with empirical data answers.

Global Fund Investor Experience Report

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× Regulation & Taxation

× More regulations (that benefit the investor).

× Lower taxes are better with no taxes being ideal.

× Disclosure

× Regular, comprehensive disclosure.

× Standardized format for fee disclosure.

× Point-of-sale fund documents that are concise and specific to one fund at a time.

× Fees & Expenses

× Lower annual net expense ratios.

× Transparency and choice.

× Sales & Media

× Variety of sales channels with open architecture.

× Media that emphasizes long-term investing and calls out high fees.

Guiding Principles

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Overall Country Scores

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Regulation & Taxation Scores

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× Single, independent regulator with adequate staffing and prompt regulatory updates are ideal.

× Regulation or prohibition of soft-dollar commissions are also ideal.

× If fund companies do partake in soft-dollar arrangements, they should be disclosed.

× Low or no taxes is best.

× If there are taxes it is better to exempt fund shareholders until the fund is sold.

Regulation & Taxation

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× Created a hypothetical tax scenario that looked at all available tax credits and assumed that investors took action for maximum tax avoidance.

Regulation & Taxation

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Disclosure Scores

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Disclosure

× Regular portfolio holdings disclosure is key for investors to understand sources of risk and return. Quarterly or monthly disclosure is ideal; global standard is semi-annual.

× Portfolio managers names should be disclosed with start dates and compensation, just like public companies in other industries.

× Expense disclosure should be standardized, with breakdowns for:

× Management costs.

× Other operating charges – custody, accounting, etc.

× Distribution / payments to advisors.

× Belgium is in line with global averages, but investors would benefit from more frequent & complete disclosure of

× Portfolio’s to enable evaluation of manager decisions.

× Manager name’s and tenure

× Cost - breakdown

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Disclosure

× Point-of-sale disclosure is particularly important as it introduces investors to funds.

× South Africa and Hong Kong don’t have effective mandatory Simplified Prospectuses.

× KIIDs are mostly good and short, but are missing a few key features.

× Comprehensive disclosure is ideal

× Fewer than five pages – delivered for a single investment only.

× Includes TER and Illustration of Fees.

× Strategy is clear enough for experienced investor to categorize a fund.

× Risks only apply to the investment strategy at hand.

× Belgium : Belgian addendum for distributors is a good step.Improvement: a monetary illustration of fund costs that would convert ratio’s into monetary terms so novice investors may comprehend how much they are paying for services.

BG1

Slide 18

BG1 key features on KIID missing: what are they?BEN GRANJÉ; 23/05/2013

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Fees & Expenses Scores

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Fees & Expenses

× Low costs result in better investor outcomes.

× Investors should have transparency and choice around advisor compensation.

× Commission bans have the potential to remove biased advice, but transparency on its own may suffice.

× Investors who do not receive advice should have the choice to avoid paying for it. The worst practices are full retrocessions paid for funds purchased through internet platforms without advice.

× Advisors adhering to a Fiduciary standard is a best practice. Most countries have a practice closer to a suitability standard.

× Commission bans will aid in transparency for investors, but may not result in lower overall cost of ownership. We measure TER not the cost of ownership.

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Fees & Expenses

× Most markets compensate advisors through front loads and retrocessions.

× The United States, UK, the Netherlands and soon Australia are the main exceptions.

× The United States has the lowest fees, and fees that decline as fund assets grow.

× Fees declining as assets grow is a best practice not found anywhere else in the world.

× Belgium receives a C due to the average-to-low cost of locally domiciled fixed-income and allocation funds.

× Pan-European products tend to be more costly than local funds.

× it is important investors have a choice in how they compensate advisors, and can avoid embedded fees.

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Sales & Media Scores

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Sales & Media

× A variety of sales channels is better for investors.

× Sales channels with open (or guided) architecture is better for investors.

× Sales channels that are technically open, but still promote related party products are not as good for investors as when advisors are not tied to fund sponsors.

× Sales contests should not be structured to generate biased advice or fund churn.

× Advisors should put the interests of investors first. Fiduciary standards are strongest, but other protections can be effective.

× The media should help investors see through fund marketing.

× Focusing on long-term performance is one measure.

× Highlighting high relative costs is another measure of media effectiveness.

× Belgium receives a D+, largely due to the closed architecture for retail audience. Bank & Insurance groups dominate fund sales, with a tendency to sell proprietary funds. In addition, the regulatory monitoring of Media communication is not conducive to better understanding.

BG2

Slide 27

BG2 here was a comment about Belgium only having 2 of 5 sales channels available, which was heavily penalised. But what are the 5 channels, and how do we judge them to be unavailable in Belgium?

BEN GRANJÉ; 23/05/2013

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