The regulator’s new RG 97 disclosure rules will fail to do the job of providing investors with transparency and comparable data if platform products are excluded from the requirements.
As the superannuation balances of average Australians swell, it is more important than ever for individuals to be able to compare funds. Comparison apps and other services are increasing in popularity, further hotting up calls for all funds to disclose comparable data.
In light of this, excluding retail platforms from new disclosure and transparency regulations goes against the best interests of consumers.
The Australian Institute of Superannuation Trustees (AIST) has been heavily involved in the protracted negotiations on the Australian Securities and Investment Commission’s Regulatory Guide 97 (RG 97), on disclosure, for the last two years. The exemption of platforms from the disclosure requirements – which AIST does not support – remains a sticking point among various stakeholders.
If improved disclosure standards aren’t consistent across the entire sector, then they will not meet the objectives of protecting consumers, transparency and comparability.
Amid the recent debate on the super tax concessions and the resultant legislated tax changes, fairness has become a core part of the superannuation narrative. This needs to extend to disclosure, where vested interests of powerful pension providers are stopping some consumers from getting the real story about their super.
In its consumer protection principles for pension funds, The Organisation for Economic Co-operation and Development (OECD) stresses the importance of standardisation, comparability and consumer testing of disclosure. It calls for a level playing field across financial services and for remuneration and conflicts of interests to be disclosed where conflicts cannot be avoided.
One reason for rigorously applying these principles – that of protecting consumers – is neatly summarised in a comment by the International Organisation of Pension Supervisors: “…the limited capacity of individuals to choose what is best for them means … too much power in the hands of pension providers. The problem is only exaggerated when pension providers are commercial financial institutions. Conflicts of interest can therefore exist between the fiduciary duty to act in the best interests of the pension fund members and beneficiaries and making profits for shareholders.”
But meaningful disclosure isn’t just about the end consumer. Without comparable data, it is simply not possible to measure the efficiency of our retirement income system accurately. This is something both the Financial System Inquiry and the Productivity Commission have in recent years highlighted as critical to improving our super system. It would also not be possible to benchmark fees and costs and, therefore, enable trustees to know whether the investment management contract before them represents good value for members.
The key problem with excluding platform-based products from the new RG 97 rules is that investors on a platform are now told only the wrap administration fee, and are left to try to find the underlying fees and costs buried in the Product Disclosure Statement (PDS) for each individual managed investment option. In other words, there is no single source of information that tells a wrap investor what their total fees and costs are. This is why neither consumers nor analysts of the superannuation system can compare a platform-based product with a profit-to-member fund, which includes comprehensive information in a single PDS for each investment option.
There are also implementation issues surrounding RG 97 that remain of concern. These mainly revolve around areas of subjectivity, such as calculation methodologies, being brought into a disclosure regime that should be highly objective.
AIST continues to advocate strongly for alignment of both disclosure and reporting across all super products. Our advocacy has sought alignment in the Choice product dashboard and in portfolio holdings disclosure proposals, as well as in select investment reporting. This is important, as there are absurd numbers of investment choices – more than 40,000 – which hold a lot of member retirement savings. We recommend that all investment options, not just the top 10 by funds under management, be included in the regulations. Legacy products should be included and there should be alignment between how providers of MySuper and Choice products have to report to the Australian Prudential Regulation Authority as well.
Good, meaningful disclosure requires careful consideration and consumer testing. It’s time for all industry stakeholders to get fair dinkum about disclosure, giving every super fund member a chance to make informed decisions.
Karen Volpato is a senior policy adviser at the Australian Institute of Superannuation Trustees. This article first appeared in the March print edition of Investment Magazine.