On Tuesday, ASIC rolled out the external review of its new fee regime for super funds, investment products and platforms – here are three key ways the proposed changes will affect you and your clients.
As background, the original idea behind the RG97 regime was to improve disclosure standards across the industry so that customers (including advisers) could better compare and contrast different options, and get a clearer picture of what costs would be involved over time. Back then, ASIC found there was “considerable inconsistency” in these disclosures.
In some cases, when the regime came into effect on September 30 last year, fees rose by up to 40% - this had a significant effect on industry funds, many of which invest in unlisted property and infrastructure.
Two months later, ASIC announced it would appoint an external expert, former Hong Kong Mandatory Provident Fund Schemes Authority chief regulation and policy officer Darren McShane, to conduct a review. This review has completed and ASIC has indicated it will follow through on its recommendations.
Here’s why those changes matter:
Under the current RG97 regime, issuers of investment products and trustees of super funds must have a PDS that includes a standardized fees and costs template, particular explanations of fees and costs, an example of annual fees and costs and a boxed consumer advisory warning. They must also describe certain transactions in periodic statements as well as indirect costs.
“Simple” managed investment schemes (along with super funds) must also comply with a “shorter PDS regime” so as to make PDSs easier-to-read for advisers, clients and consumers – in this case, a maximum of eight A4 pages.
The problem, as the review states, is that PDSs are “point of sale” documents, and comparing each one can be “laborious and time-consuming.” As a result, the review recommends establishing a consumer-facing portal where advisers and clients can review information extracted from these lengthy documents so as to make an easier initial comparison.
In order to do this, though, ASIC will need to work proactively with product providers and trustees to ensure information presented in disclosure statements is as consistent as possible.
ASIC’s original regime for super fund fees was relatively complex. To address this, the review recommends that the provision for “advice fees” – that is, fees for advice provided by super funds – be incorporated into “administration fees”. Furthermore, the distinction between investment fees and indirect costs should be removed, and the two should be merged.
When it comes to investment products, the review focuses on concerns surrounding performance fees: here, it recommends merging “performance” and “performance-related” fees and calculating performance fees in the fee template as the average of fees collected over the previous five years. Or, if the fund hasn’t been in operation for that long, it should be calculated as an average of the number of years it has been collecting performance fees.
One of the thornier issues raised by some of the 120-plus stakeholders consulted for the review was how the RG97 regime affects disclosures by investment platforms. The review notes that this was an area where there has been a “significant divergence of views between different industry sectors.”
The reason for this is that there are effectively two layers of costs involved: those charged by the platform itself and those by the underlying investments accessed through the platform.
To address the problem, the review suggests including key fees of underlying products in the platform’s investment menu in a tabular format; greater consistency in terms of the warning that the platform’s fee template relates to the “cost of access” rather than the fees charged by underlying products; and inclusion of cost impacts of accessible investments in the platform’s periodic statements. a
McShane’s review concludes that while some of these changes ease the burden on product providers, others directly address consumer and adviser concerns. ASIC has welcomed the review, saying the changes to fees and costs disclosure “are in the interests of consumers and industry.”
Ultimately, anything that makes it easier for you and your client to choose the right investments, the better.
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