A Morningstar report that gave the local managed funds industry a D- grade is no surprise but the analysis was too harsh on taxation standards, the Investment Savings and Insurance Association (ISI) says.

ISI chief executive Vance Arkinstall says tax incentives for long-term savings have been slow coming because the industry has endured “neglect” from policymakers.

“The industry can’t do anything to change that.”

But the new PIE regime with a top tax rate of 30% was a big step forward and has been popular.

Morningstar’s rating is understood to reflect the large number of managed fund still on pre-PIE tax systems, the ISI says. But many of these funds are small and closing or merging them would be costly compared to the tax gains.

In other areas, the ISI is working on better voluntary standards so that fees and investment performance are disclosed consistently across the industry. "The Morningstar report adds further weight to a reform agenda," Mr Arkinstall says.

First up will be fee disclosure standards, setting out definitions and consistent formatting for fund managers to follow.  Standards on fund performance will take longer to develop, Mr Arkinstall says.

KiwiSaver has played an important role in pushing the industry to become more responsive, he says.

Morningstar also criticised a lack of disclosure of portfolio holdings in the local industry.

The ISI says this is “only a position at a single point” but should not be too difficult to disclose if it is considered important.

ISI itself is also looking to become more “responsive” by appointing an independent member to its board.