Wednesday September 9 2020

News Source: Fund Regulation

Focus: Assessment of Value

Type: General

Country: Australia

On 9th September 2020, the Australia Securities and Investments Commission (ASIC) announced that it had updated the fees and costs disclosure regime to provide greater clarity on obligations of superannuation and managed investment product issuers.

Transparent fees and costs are important for the proper functioning of the market, and product issuer accountability. Effective fees and costs disclosure support better decision-making by consumers and the advisers who assist them.

Regulatory Guide 97 Disclosing fees and costs in PDSs and Periodic Statements (RG 97) provides guidance on how fees and costs should be disclosed in Product Disclosure Statements (PDSs) and periodic statements. It aims to promote greater transparency and achieve better consumer outcomes by setting standards for the clear presentation of fees and costs information.

While disclosure on its own is not sufficient to ensure consumers achieve the right outcomes, consistent and comparable disclosure helps consumers and their financial advisers to better understand the fees and costs involved in financial products, compare products more easily, and make more informed assessments about whether a product is suitable for the consumer.

Major update to RG 97

In November 2019, ASIC released a major update to RG 97 following industry-wide feedback about the practical challenges of implementing the fees and costs disclosure regime and about the challenges to consumers given the complex nature of fees and costs disclosure.

The major update followed an external expert review of RG 97 to assess the extent to which the regime assisted consumers to make decisions and compare products, as well as how practical it was for industry to implement. The findings are published in Report 581 Review of ASIC Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements (REP 581).

ASIC also carried out public consultation (Consultation Paper 308 Review of RG 97 Disclosing fees and costs in PDSs and periodic statements) and consumer testing of the proposed changes outlined in REP 581.

The modifications to legislative obligations described in RG 97 are made in ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070, which was recently amended in July 2020. This instrument is drafted so as to comprehensively set out the law as modified, to assist issuers in understanding their obligations.

Other changes included:

  • requiring costs met using reserves to be included in the calculation of fees and costs disclosed in a PDS
  • confirming that fees and costs in PDSs are still required to be disclosed gross of any tax benefit being passed on to the member
  • removing the distinction between performance and performance-related fees so the disclosed performance fee will include the performance fees at the product and underlying investment vehicle levels, and
  • rewriting and restructuring RG 97 to contain separate discussions of managed investment products and superannuation to make it easier to use and understand.

Further minor amendments

In early 2020, ASIC held roundtables to explain the changes and get industry’s feedback on whether there were any issues requiring further clarification. Based on the feedback, ASIC made further minor amendments to RG 97 in July 2020.

These minor amendments provide greater clarity on the requirements, and confirm ASIC’s policy position on:

  • the disclosure of performance fees
  • significant event notice requirements
  • the identification and treatment of derivative costs, and
  • the disclosure of buy/sell spreads in periodic statements for collective investment products under Class Order [CO 14/1252].

As well, amendments were made to adjust the PDS transition arrangements to allow issuers more time and flexibility in light of COVID-19. Originally the new requirements were to apply to PDSs on or after 30 September 2020. Now, PDSs given on or after 30 September 2022 must comply with the new requirements. But an issuer may choose to apply the new requirements to a PDS dated on or after 30 September 2020.

The minor amendments also correct inconsistencies or drafting errors in the legislative instrument and the RG.

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