Greater transparency on fees is coming soon

Camphin Boston | February 2018

Have you ever wanted greater transparency and comparability in terms of fees and costs you pay to invest in superannuation and managed funds? Well, Australian Securities and Investments Commission (ASIC) may have a solution for you.

ASIC has identified inconsistencies with reporting and under-reporting of certain fees as key issues for consumers. From 1 October 2017, most product disclosure statements (PDSs) issued by superannuation funds and managed investment funds should conform to the enhanced disclosure requirements of RG 97.

Generally, under the updated RG 97, PDSs will need to include a standardised fees and costs template, certain additional explanations of fees and costs, an example of annual fees and costs, and a boxed consumer advisory warning. The standardised template should allow you to compare the fees and costs involved with products, quickly and easily, without having to trawl through different sections of the PDS.

In addition to the usual performance fees and management fees, the PDS must also include indirect costs, which are any amounts that may directly or indirectly reduce your return on the product. The indirect costs are usually calculated based on what was paid in the previous financial year and must be calculated and disclosed either separately (for super entities), or as a part of management costs (for managed investment funds).

It is hoped that such increased disclosure will remove any hidden costs which can reduce the value of investments by stealth.

To further assist you, the following needs to be transparent:

  • a worked example of the application of the fees and costs during a single year’s holding of the product;
  • information such as material amounts paid or payable to related parties of the issuer;
  • any conflicts of interest; and
  • a breakdown of fees and costs.

ASIC has not specifically prescribed the form and content of the standardised fees and costs template, however, RG 97 for MySuper products contains a list of fees and costs, which must be disclosed in the template including the:

  • investment fee;
  • administration fee;
  • buy-sell spread;
  • switching fee;
  • exit fee;
  • advice fees relating to all members investing in a particular MySuper product or investment option;
  • other fees and costs; and
  • indirect costs ratio (indirect costs paid in the previous financial year over the total average net assets for the relevant financial year).

It is likely that other investment products will need to disclose similar fees and costs information to consumers. Where fees and costs involved may be variable, RG 97 notes that the amount should be shown as a range in the fees and costs template. However, calculations (ie, worked examples) must be based on the highest amount within the range.

At this stage not all PDSs issued after 1 October will have the enhanced disclosure features due to resistance from the industry. ASIC received feedback from across the industry citing challenges to the practical implementation of RG 97 by the deadline, despite six months’ notice since RG 97 was first released in March. In an attempt to placate the industry, ASIC has extended its facilitative compliance approach to fee and cost disclosure. ASIC will also work with an external expert to conduct a review of the reforms contained in RG 97 to ensure the objective of greater transparency for consumers is met in practice.

So transparency is coming, but it will be a slow process.

Want to know more?

Do you have a self-managed super fund (SMSF) that invests in managed funds? Or maybe you just want to know more about the changes? Contact us today.