The author of an external review of the corporate watchdog’s controversial fee-disclosure regime warned the superannuation sector that government could potentially introduce other policy solutions to help consumers make more-informed decisions.
Darren McShane, a former executive director of Hong Kong’s mandatory pension regulator, told the Australian Institute of Superannuation Funds’ annual Superannuation Investment Conference (ASI 2018) the processes around implementing ASIC’s RG 97 regime had left many across the sector unhappy.
“There is always the risk that politicians, governments will look for alternative solutions. What I noticed through this process was that no one is really happy…Industry is not happy,” he said.
“Consumers are apparently not happy, ASIC was not very happy, and with the recommendations that I’ve made, I suspect, don’t get to a point where everyone is hunky dory and this is a perfect place to be.”
Last November, ASIC commissioned McShane to conduct the review, following widespread contention among industry and retail super funds about how fees should be disclosed.
McShane – who, on Thursday, described his 223-page report as “turgid” – said fee and cost disclosure continued to “grate”, both here and internationally.
“This is an area where there are other policy options,” he said. “Politicians and governments can go other places, but to the extent you’re unhappy with this, just be aware [there are] other solutions on the fees and charges issue. They [politicians] could jump at any time.”
Overseas, levers such as fee caps were “not uncommon” for pension funds, McShane said.
“The UK-imposed pension caps on default products, as did Hong Kong, and there are lots of other jurisdictions with fee control on pension products,” he said. “[There has been] a move away from profit providers in parts of the super system, so not-for-profit bodies is the alternative to remove the product cost element. There are plenty of examples where centralisation has been used to reduce systemic costs.”
Speaking on the same panel as McShane, ASIC senior executive leader for superannuation, Jane Eccleston, said the corporate watchdog was “mulling” McShane’s recommendations and planned to release a consultation paper “before Christmas”.
“It will contain a lot of detail and something that you can practically engage with, rather than just some high-level ideas,” Eccleston said. “In some ways, Darren has been the ‘ideas man’ and now we want to translate that report into something more concrete for everyone.”
She told the panel there “will be some sort of change” but that the regulator wanted to ensure the changes are practical for funds to implement, while also providing transparency and useable information for consumers.
While stating that ASIC’s RG 97 is a “notable improvement” for consumers over what existed before its implementation in September last year, McShane’s report also said those looking to compare products could still do so only by comparing Product Disclosure Statements – “a laborious and time-consuming exercise that most consumers would likely avoid or short-cut”.
Industry funds that hold significant investments in unlisted assets had previously complained the RG 97 requirements would push up costs. There was also disagreement over whether investment platforms should be forced to disclose consolidated costs that included the fees for using the platform plus those for the investments to which they offered access.
Eccleston said that, over the last six months, ASIC had engaged with trustees at super funds that had provided what the regulator had determined were “misleading” disclosures of fees and costs.
“We made them correct that behaviour and will continue to monitor that area while we formulate how we respond to the review,” she said. “I’d really stress that while we’re preparing our response, we expect all trustees to act in good faith and we will act against any deliberately misleading disclosures.”