Super funds and master trusts need to improve their fee disclosures, according to consultancy Chant West, following a study of 70 funds’ PDSs since the introduction of the new ASIC dollar-disclosure regulations from July.

There is still a lack of consistency between funds in their fee disclosures, due to different interpretations of the regulations, and there are some funds which are failing to make certain disclosures, the study shows. Chant West says: While the new rules are clearly a step in the right direction, there remain some areas of concern. Chief among these are: * the tax treatment of administration costs; * disclosure of ‘layered’ investment fees; and * the use of estimates in the management costs template, particularly of performance fees and indirect costs. The regulations require that fees be calculated before administration costs, which are tax deductible. Whether or not the tax savings are passed onto the investor also needs to be disclosed. But the study discovered that some life offices are continuing to disclose fees net of administration, accompanied by an ambiguous comment on tax deductions, often in a totally separate section of the PDS. Similarly, some industry funds are failing to disclose that they are retaining the benefit of the tax deduction on admin costs and insurance costs as well, in some cases. With increasing use of alternatives, which often have performance fees, funds have multi layers of investment fees and these are not always being disclosed or disclosed adequately. Chant West says: “This is not a question of interpretation, but rather a failure to disclose to prospective members a substantial element of costs. The problem applies more to industry funds than to master trusts, only because the former have been more active in these alternative assets. Again, however, there are some notable exceptions of funds that do invest in alternative assets and yet manage to disclose all costs clearly.” The disclosure of management fees also has room for improvement. Where it is not possible to be precise about future fees, the regulations allow for an estimated range of fees to be included. “Our concern here is that funds are not doing enough to provide prospective members with a realistic idea of what costs they are likely to incur,” Chant West says. “In too many cases, all they are doing is quoting last year’s actual costs and stating that they are not to be taken as an estimate of future costs. While this approach parallels that applying to investment returns, it is not what the regulations demand.” Notwithstanding its concerns in some areas, Chant West believes that the regulations have prompted an improvement in disclosures in PDSs. “Generally we found that fee disclosure has become more consistent. In particular, the standard fee template and worked example provide greater certainty that apples are being compared with apples. So to that extent consumers are being better served,” the consultancy says.

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