ASIC has intensified its review of superannuation disclosure practices following the introduction of choice of superannuation legislation in July 2005. The work being undertaken by ASIC on superannuation product disclosure statements (PDSs) is part of ASIC’s increased focus on the superannuation area more generally in light of superannuation choice, and aims to ensure that industry is responding responsibly to the introduction of superannuation choice.
ASIC’s review of superannuation disclosure practices includes PDSs, advertising and websites.
Past Performance Information
As a result of recent disclosure reviews, ASIC has noted that the superannuation industry frequently includes past performance information in disclosure materials, including PDSs and information available on issuer websites. ASIC is concerned that past performance may be misleading in some situations, particularly where no warning is given that past performance is not a reliable indicator of future return.
ASIC encourages issuers to review the ASIC Guide on the Use of Past Performance in Promotional Material. Issuers are also reminded that in some situations where promotional material, including website information, is misleading, ASIC may impose stop orders pursuant to section 1020E of the Corporations Act (the Act).
Risk disclosure
Several PDSs reviewed provided insufficient information about the risks associated with the product, providing only generic risk information, while other PDSs failed to cover the risks associated with the underlying products such as overseas shares, property or hedge funds.
On a number of occasions, ASIC found that the risk disclosure included in the Member Investment Choice brochures, prepared by the trustees for the purposes of regulation 4.02(2)(b) of the Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations), would meet the requirements under paragraph 1013D(1)(c) of the Corporations Act (the Act), if this information was also included in the PDS.
ASIC encourages issuers to review the information supplied in ASIC’s QFS 137 What information about investment choice must a trustee of a superannuation fund include in its Product Disclosure Statement?. QFS137 provides guidance to issuers as to their options in meeting the dual disclosure requirements under the SIS Regulations and the Act.
Prospective financial information
Many superannuation PDSs reviewed included prospective financial information, generally in the form of an investment objective, which did not appear to have a reasonable basis. ASIC considers that investment objectives may require disclosure which addresses whether there is a reasonable basis for the investment objectives, where those objectives constitute forward looking statements for the purpose of s769C of the Corporations Act. ASIC refers issuers to its Policy Statement 170 Prospective financial information. If superannuation trustees wish to disclose their investment strategy and objectives, particular care should be taken to ensure that forward looking statements are adequately supported. This is an area that ASIC will focus on in the future.
Out of date information
Investors are entitled to expect that a PDS will contain up to date information about significant superannuation issues that may impact upon them. A number of PDSs have not been updated to take account of, for example, changes relating to the superannuation surcharge and to eligibility criteria for the superannuation co-contribution.
Fee Disclosure
In general terms, ASIC has found that most superannuation issuers have made a good attempt to meet the requirements of the new Corporations Regulations 2005 (No 1) (the Enhanced Fee Disclosure Regulations). However, ASIC is taking further action in relation to issuers who have failed to include the basic, prescribed text, including the consumer advisory warning, the mandated fee template and the worked dollar examples. ASIC may also raise concerns with an issuer’s fee disclosure if there are other issues in the PDS that are of concern to ASIC.
ASIC has acted in relation to PDSs, and advertising, that include claims that one fee applies to a product when in fact additional transaction costs apply. This action follows ASIC’s announcement in relation to advertising. ASIC is not sympathetic to arguments from issuers that there is a distinction to be drawn between a ‘fee’ and a ‘cost’. ASIC’s view is that consumers who read a statement saying that there is only one fee assume, unless clearly told otherwise, that there are no other costs associated with this product that they will incur.
In addition, ASIC has found that transaction costs, particularly buy/sell spreads, are sometimes poorly described in PDSs.
Further information in relation to ASIC’s approach to the Enhanced Fee Disclosure Regulations is available from ASIC’s website at www.asic.gov.au.
ASIC will continue to focus on these issues and other inadequate disclosure practices in the superannuation industry. ASIC will employ a range of corrective strategies including raising concerns with issuers, and, where appropriate, imposing stop orders.
ASIC Frequently Asked Questions
ASIC QFS 137 What information about investment choice must a trustee of a superannuation fund include in its Product Disclosure Statement?
ASIC Policy Statements
ASIC Policy Statement 170 Prospective financial information
Information releases relating to fee disclosure
IR 05-19 ASIC provides answers on some fees and costs questions
IR 05-54 Further answers on some fees and costs questions