The Australian Securities and Investment Commission is urging superannuation funds to draft their own set of fee transparency guidelines ahead of its own updated guidance issued today.
The regulator is targeting non-disclosure relating to investment in underlying investment vehicles, incorrectly disclosing fees net of tax and inconsistent disclosure of performance fees.
Such inconsistencies have left funds such as CareSuper, which have committed to disclosing the fees of underlying fund managers, with reported fees as high as 1.39 per cent, while many others are 50 basis points lower.
Greg Tanzer, commissioner at ASIC, said the report would be followed by a period of surveillance and enforcement if necessary, but that self-regulation was preferable.
“From a regulatory perspective we often hear people say there’s too much regulation,” he said. “This area and the detail around the fees people pay for different things are ripe for industry action, because it’s in the industry’s interest to do this in a consistent way.”
ASIC’s report sets out clear expectations about how management and transaction fees are paid to asset managers, both within multi manager funds as well as for standard mandates. The report will be followed by a revision of Regulator Guide 97 Disclosing fees and costs in PDSs and periodic statements.
Tanzer said consistency was needed to enable consumer to make meaningful comparisons between products.
CareSuper’s 1.39 per cent fee for an account holding $50,000 is the most expensive for an industry fund, while the lowest range of fees are 0.55-0.70 per cent for five corporate, public sector and industry funds, according to the ChantWest super fund fee survey.
Warren Chant, director of ChantWest, commends CareSuper as one of the few funds that discloses the fees of underlying managers in fund of funds products.
“They have been doing that for some time and because they have quite a few of them, so they look expensive,” he said. “We would expect as time goes by in the not too distant future that the fees of other funds will go up because they have to report them more fully.”
He added that net of fees and tax CareSuper has been an “outstanding performer”.
Funds are facing a twin warning on fee transparency, with full compliance to APRA’s reporting standard SRS 702 required by 2015.
SRS 702 obliges funds to itemise fund manager base fees, performance fees, underlying manager fees, underlying manager performance fees, tax expenses/ benefits and other indirect investment costs.
Responding to the debate, Julie Lander, chief executive of CareSuper admitted her fund’s choice of managers and a preference for active management was one factor in her fund’s fees, but that full transparency added to visible costs.
“Our costs are disclosed at a much higher level than others. So we cop the fact that we look more expensive,” she said.
“We also wear it that our asset allocation means we are more expensive, but that has really delivered better returns. Secondly at a disclosure level we can put our hand on our heart and say no we are disclosing second tier costs as well.”