The corporate watchdog wants to ensure the owners of superannuation products present all administration and investment fees and costs as a single line item in member communications, rather than breaking out indirect costs, as part of its effort to make it easier for consumers to compare products.
On Tuesday, ASIC released its much-anticipated consultation paper on its controversial fee disclosure regime known as RG 97. It is seeking feedback on proposals to alter the current fees and costs disclosure regime for managed investment schemes and super, some of which would require amendments to Schedule 10 of the Corporations Regulations.
As part of the proposed changes, ASIC wants to make key amendments to the superannuation product “fees and costs template”, merging the indirect costs that relate to the investment of the superannuation entity’s assets with investment fees, and merging the indirect costs that relate to the administration or operation of the superannuation entity with administration fees.
“We believe the proposed changes would help align the disclosure requirements for superannuation products and those for managed investment products,” ASIC stated in the consultation paper. “In particular, merging investment fees and indirect costs reflects the fact that ultimately these fees and costs are borne by the superannuation entity regardless of the investment structure chosen.”
Advisers on notice
Financial advisers are on notice to understand the regime, so they can advise clients about value-for-money funds and abide by the best-interests duty.
Consultation over the RG 97 reforms has been rolling on for more than four years. The reforms were implemented in September 2017; however, just two months later, ASIC was forced to appoint an independent expert, Darren McShane, to review the changes, due to widespread industry criticism over the regime’s complexity and lack of flexibility.
As part of the consultation package released on Tuesday, RG 97 has been re-written to provide greater context than the previous version, which some industry participants deemed too prescriptive.
A key part of the initial proposals was the requirement to disclose “indirect” costs, which are fees collected by the likes of equities fund managers that are “interposed” between and investor and their assets. Industry funds opposed the plan to exempt investment platforms from the same level of disclosure.
Indirect costs are often paid by superannuation providers which outsource investments.
ASIC, in its consultation paper, states that allowing funds to break down the combined single figure of investment fees and indirect costs to explain its components would “hinder consumers’ ability to compare products”.
McShane’s report also did not support “additional” breakdowns of fees and costs.
ASIC also wants to remove fees for intrafund advice as a line item and instead include this cost in administration fees, and group “ongoing annual fees and costs” separately from the “member activity related fees and costs”.
Property and platform disclosures
Another contentious issue has been how to disclose property costs.
“Many stakeholders felt property operating costs should not be included in fees and costs disclosure, as they are difficult to collect, may be distortive and may not be relevant to consumers,” ASIC stated in the consultation paper.
In one recommendation, ASIC proposed that it would not require property operating costs, borrowing costs and implicit transaction costs to be disclosed in product disclosure statements and periodic statements.
ASIC has also proposed that platform providers “include a prominent statement in the ‘fees and costs template’ indicating that the fees and costs charged by the platform relate only to gaining access to the accessible financial products, and do not include the fees and costs that may be charged by the issuers of accessible financial products”.
“Platforms have a more complex structure, disclosure [for them] is always going to be more complex than for non-platform products,” ASIC stated.
In December, ASIC said it would push the start date for RG 97 from 2019 to 2020.
This follows a previous one-year extension for the rules changes in November 2017, which pushed the compliance date out to 2019.
The regulator is now seeking comments on the consultation paper by April 3, 2019, with a response expected by the middle of this year. The corporate watchdog is particularly interested in whether the new regime would be practicable for the industry and plans to undertake further consumer testing.