Wednesday 9 September 2020

Providing greater clarity on obligations of superannuation and managed investment product issuers

In November 2019, ASIC released a major update of Regulatory Guide 97 Disclosing Fees and Costs in PDSs and Periodic Statements, to achieve better outcomes for consumers by providing greater clarity on disclosure obligations for product issuers of superannuation and managed investment products. ASIC has since made further minor amendments to RG 97 and the associated legislative instrument including implementation timing, due to COVID-19. Jane Eccleston, ASIC’s Superannuation Senior Executive Leader, provides an overview.

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.

Most of the proposals outlined in Consultation Paper 308 were adopted in the major update of RG 97.

Changes were made to the presentation of fees and costs information for consumers to make it more useable by:

• re-grouping values in the re-named ‘Fees and costs summary’ to more clearly show fees and costs that are ongoing and those that are member-activity based
• simplification of ongoing fees and costs into three groups – Administration, Investment and Transaction
• inclusion of a single ‘Cost of Product’ figure in a PDS, and
• simplification of how fees and costs are presented in periodic statements.

Changes were made to the data inputs needed to comply with the disclosure regime. The update clarifies the costs categories that need to be counted in the disclosed amounts. This includes confirming that some categories of costs that industry struggled to measure consistently, and had limited value for users, need not be included (implicit market costs, borrowing costs, property operating costs).

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.

What you need to do now

Superannuation trustees should:

• update existing system builds to ensure that you will be able to meet the new requirements for fees and costs disclosure in PDSs and periodic statements in time
• review your calculation methodologies, due diligence processes and governance arrangements for collecting and compiling fees and costs information
• consider your arrangements with service providers, people offering investment opportunities and interposed vehicles and how the data is necessary for your products.

APRA reporting requirements

As you know, APRA is undertaking work to improve superannuation industry data consistency and transparency, including in relation to fees and costs. ASIC and APRA have been working together to align APRA’s reporting standards with the fees and costs disclosure regime.

These and related APRA initiatives, such as the heatmap publication for MySuper products, further highlight the importance of trustees taking steps to ensure the quality of fees and costs data and disclosures.

Next steps

Trustees can choose to opt-in to the regime from 30 September 2020 for PDSs and 1 July 2020 for periodic and exit statements. To opt-in, the trustee must make a written record that includes the date of election and the PDS/product to which the election applies. A key deadline is the requirement that periodic and exit statements with reporting periods commencing on 1 July 2021 must comply with the new requirements, meaning that the new requirements for exit statements will be triggered for exits on or after 1 July 2021. 

ASIC will continue to develop its proposals on disclosure by platforms. In the first instance, ASIC proposes to issue a consultation paper responding to the recommendations made by the external expert in REP 581 on platforms and feedback previously provided by industry and other stakeholders. We are working towards issuing this consultation paper; however, the timing has been affected by COVID-19 priorities.

ASIC will continue to monitor fees and costs disclosure by superannuation and managed investment scheme product issuers. We will consider taking action where we find misconduct.

Any further questions about the new requirements and amendments to RG 97 can be sent to feeandcostdisclosure@asic.gov.au.

Further information, including updated slides from the early 2020 roundtable sessions answering common questions, is available on the ASIC website:

• ASIC releases minor updates to RG 97
• RG 97 Disclosing fees and costs in PDSs and periodic statements.

This article was first published on ASFA’s Superfunds. ASFA members can log in to the new Superfunds website to view the article.