OPINION | There’s no point beating around the bush. The Australian Securities and Investments Commission’s Regulatory Guide 97, on disclosing fees and costs, is a mess that has failed to deliver on basic consumer protection principles of comparability, consistency and transparency.
With no satisfactory resolution in sight to the protracted four-year debacle, perhaps it is time for a new approach. Ideally one that is focused on net returns and simpler for consumers to understand.
Research produced by Rainmaker for Industry Super Australia found that in 2016, retail funds controlled 29 per cent of superannuation funds under management but collected 50 per cent of fees. Clearly, members of retail funds are paying much more than their share of fees and costs.
A carve-out in the RG 97 regime for platform-based products means many members of retail Choice funds will be none the wiser about whether they are getting a good deal on fees.
That aside, a more basic question remains as to whether more disclosure equates to better-informed consumers. Behavioural economists have highlighted repeatedly that bombarding people with more detailed disclosures does not help them make better choices.
All super fund members already receive information about fees and costs via Product Disclosure Statements and their annual account statement. MySuper members have access to more fee and cost data via product dashboards. Yet, research by Rice Warner for Industry Super Australia found that almost half of those who make an active choice about their super pay a higher fee after switching, while only 20 per cent of members pay lower fees after changing funds.
Rather than introducing ever more complicated and prescriptive rules about fees and costs disclosure for consumers, the focus should be on enabling members to compare the long-term net returns across all products. Net returns reflect all fees and costs along with investment performance.
This would be the best use of members’ limited time and capacity to decide whether to switch funds.
There is a simple way to achieve this. The government should extend the product dashboard regime to Choice products. The legislative framework is already in place.
We cannot and should not expect workers to undertake a forensic analysis of the impact of hundreds or thousands of line items detailing individual components of the fees and costs − including indirect costs – within different super products.
Other uses
The problem of ineffective disclosure isn’t confined to consumers. It also makes it difficult for regulators, funds, analysts and other stakeholders to assess the efficiency of our super system properly.
The rules for disclosure of fees and costs underpin the data that superannuation funds report to the Australian Prudential Regulation Authority (APRA).
The trouble with this is that the myriad problems with ASIC’s consumer-focused fees and costs disclosure regime trickle into APRA’s data collection; for example, the fees and costs of platform products reported to APRA do not contain all costs of those products, owing to regulatory gaps.
Rather than relying on the deeply flawed fees and costs disclosure rule ASIC is struggling to implement, APRA should develop standalone rules for collecting and publishing consistent, granular, comprehensive data on fees and costs for every superannuation product and investment option.
The regulator could then use this data to:
- Monitor whether fees and costs are going up or down
- Examine how fees and costs differ for different sectors, asset classes, products and options
- Explore the relationship between fees and performance
The Australian Institute of Superannuation Trustees is engaging with both regulators on next steps to improve disclosure, including actively consulting with ASIC regarding the current review of RG 97.
Disclosure in superannuation has two distinct and important functions: helping consumers and facilitating assessments of our super system’s efficiency.
We need to rethink what information will genuinely help both pursuits. More than 25 years on from the introduction of compulsory super, we are still falling short on both counts.
Ailsa Goodwin is head of advocacy at the Australian Institute of Superannuation Trustees. She is scheduled to facilitate a session on policy updates at the 2018 Conference of Major Superannuation Funds, March 14-16, in Brisbane. For more information, click here.
