Super funds and ASIC have been locked in a long-running battle about how funds disclose their investment and administration costs, which vary from product to product and make it difficult for people to compare them.
Indirect costs, where a fund uses external providers such as investment managers, are often shown separately from administration and investment fees. This practice that has drawn criticism as they lack transparency and can be manipulated by funds that want to minimise fee disclosure.
Plans for the new rules – more than two years in the making – have been the subject of considerable push-back from the industry.
In November, 2017, ASIC appointed regulatory expert Darren McShane to conduct a review in consultation with funds. Since then, there have been multiple discussions, consumer testing and continous delays that have frustrated industry players.
Ms Press said the new guidance would provide the industry with more clarity around the law and transparency on fees.
She said that now that the rules of the game had been set out, it was time for the industry to deliver the best products, rather than fight over the rules themselves.
“We are really looking for industry to embrace this, rather than fight it,” she said.
“While disclosure has its limits, transparent fees and costs are important for the proper functioning of the market and product issuer accountability.
“Effective fees and costs disclosure supports better decision-making by consumers and the advisers who assist them,” Ms Press said.
The new disclosure regime will see super funds follow a simple template that separates annual fees and costs and member activity related fees and costs in product disclosure statements.
To make funds comparable on a like-for-link basis there will be a single figure “cost of product” information number, based on a $50,000 balance.
Investment fees and administration fees have been expanded to include the indirect costs that relate to them, advice fees (intra-fund) has been rolled up into administration fees and costs. There is a new line item for transaction costs.
Periodic statements for super fund members and managed funds will disclose amounts deducted directly from members’ accounts in three lines – “fees deducted from your account”, “fees and costs deducted from your investment” and “total fees and costs you paid.” Any performance fees must be included in the investment fee.
Managed investment funds have their own separate template, with management fees and costs – the most significant item – appearing first. There is also disclosure required for transaction costs, buy-sell spread and performance fees.
Ian Silk, chief executive of AustralianSuper, the nation’s biggest fund, is backing the changes.
He told the House of Representatives Standing Committee on Economics last week that the $180-billion fund supported the new unified standard.
“We support a consistent transparent fee disclosure standard so that members are clear about what they are paying for,” Mr Silk said.
However, the Financial Services Council, which represents some of Australia’s biggest fund managers and life insurers, said that it was “disappointed” its request for a longer timeframe for implementation was not granted.
“We submitted that this was necessary to accommodate the extensive system, data gathering and disclosure changes,” said chief executive Sally Loane.
“It is possible that the shorter timeframe will put some issuers under added pressure in adapting to the new rules.”
Stephen is Investment Editor at The Age and Sydney Morning Herald. He writes about personal finance issues and markets as well as editing Money.