Fee disclosure drama’s conclusion in sight

Jonathan Steffanoni

By

11/01/2019

The latest RG 97 proposals include welcome, sensible changes that stand a good chance to bring this lengthy drama to a close writes Jonathan Steffanoni, principal consultant, legal and risk at QMV.

We might not see the series centred around the ongoing drama colloquially known as RG 97 on Netflix; however, the first episode of a new season has landed – and there’s good reason to believe it may be the final season.

In its consultation paper released this week, the corporate watchdog has provided a strong indication of the direction it intends to take in regulating the disclosure of fees and costs for superannuation funds and managed investment schemes. This comes after a period of perceived uncertainty and some frustration from the industry following multiple waves of measures intended to provide greater transparency and consistency in the information disclosed to consumers about indirect fees and costs.

The ASIC-proposed measures adopt many (but not all) of the recommendations made by experienced regulator and policymaker Darren McShane in his 2018 review of the regime.

The most significant change proposed in the paper is the consolidation of direct and indirect fees and costs into the administration and investment management categories for product and periodic disclosure.

Industry funds to welcome property moves

Large industry funds with direct property and alternative investments will welcome the move to exclude property operating, borrowing, and implicit transaction costs. This move will probably address concerns around operational and technical challenges in identifying and monitoring such costs. It may also mean that such fees and costs disclosed won’t be as high as they would have been under the current requirements.

Similarly, the move to provide greater certainty in relation to the inclusion of third-party or reserve- funded costs, and transactional or counterparty spread costs, will probably be welcomed. The inclusion of general financial advice costs within the disclosed administration costs will also align with the integration of general advice into service’s that registrable superannuation entities (RSE) or responsible entities (RE) provide.

The simplification measures are also sensible.

ASIC’s proposed approach of issuing a legislative instrument to delete and replace the entire schedule 10 – and then publishing a consolidated version – must certainly come as a relief to all. Likewise, the rewrite of RG 97 offers the prospect of regulatory guidance that has benefited from extensive consultation and discussion.

Uncertainty remains

There is still, however, some uncertainty. ASIC has been careful in highlighting that the Protecting Your Super Package (now before federal Parliament), and probable introduction of the Corporate Collective Investment Vehicle package may have an impact on the intended approach.

The drafting of the Protecting Your Super Package has been earmarked as an area that might warrant attention, if it is to be passed in its current form. The 3 per cent fee cap proposed in the bill is drafted in a way that determines the fees and costs by reference to the indirect costs required to be disclosed. Sensible technical amendments to the bill (assuming it’s to be debated in the Senate before the election) could easily accommodate the proposed changes.

Status quo for the moment

Superannuation trustees and REs will remain subject to the existing laws, class-order relief and ASIC’s facilitative enforcement approach during the consultation period and prior to any changes coming into effect.

It is important that planning commences in anticipation of the proposed changes to product and periodic disclosure. This should include arrangements and procedures for monitoring indirect fees and costs to ensure that RSEs and REs are able to identify and notify investors of any material increases in fees and costs.

It would be fair to say that much of the industry looks forward to seeing the back of ongoing discussion around RG 97. Regulations and guidance that balance consumers’ need to have simple and consistent fee and cost information with the industry’s expectation of clarity and certainty appear to be almost within sight.

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