With record fines on financial institutions in the news, it is easy to focus on the negatives of the U.S. financial industry. While there are certainly areas for improvement, research shows that the U.S. is actually the best country to be an investor.
The research firm Morningstar evaluates the investor experience in countries around the world. Its latest report compares investing in 24 countries. What country comes out as most investor friendly? The United States ranks first overall by a wide margin – the only country that receives an A rating. Canada only gets a C+.
The U.S. also ranks first in a very important category fees. The U.S. is the only country surveyed with average equity fund fees below 1%. Which country is the most expensive? Canada. Average equity fund fees in Canada are over 2%!
The U.S. also gets high marks for disclosure. The U.S. requires a fair amount of documentation from funds including publishing fund manager names and tenures (only three countries require this), manager compensation data and regular reporting of fund holdings (some countries do not require this at all).
What are some areas the United States could do better in? Currently, only 40% of fund board members must be independent directors. Requiring a majority (as only India does now) would be an improvement. Taxes are high for U.S. investors in taxable accounts, taking a much larger cut of total returns than in countries like Canada and the U.K. The main culprit for higher U.S. taxes is making fund investors pay taxes on the capital gains funds themselves generate. Many countries do not impose this requirement.
We would not be surprised to see the U.S. continue its top ranking in future investor surveys. The increased use of low cost ETFs and index products in the U.S. is driving down fees (passive index strategies took in roughly three times the amount that active strategies did in 2013). The combination of a robust media and multiple government regulators helps to safeguard and improve investing conditions over time. The biggest unknown is if we can expect any tax reform, though with looming funding issues for entitlement programs, this seems unlikely.