ASIC proposes new changes to Managed Investment Scheme’s Fees and Costs
Following the recent release of the external report by Darren McShane into the fees and costs for superannuation funds and managed investment schemes, ASIC has proposed to adopt several reviewer recommendations to improve transparency in Product Disclosure Statements (PDS). Released on January 8, ASIC’s consultation paper 308 details these proposed changes which in turn will result in a change to RG97 and parts of the Corporations Act.
“Noting the complexities faced by consumers in factoring cost impacts into decision-making, the complexity of information they have available to them and the limitations of supporting tools it is difficult to be confident that the current regime is an optimal approach.”
- Darren McShane, pg. 157
The aim of these changes is to simplify the cost information presented to potential investors in PDS documents and periodical statements so they can make more informed and confident value-for-money decisions. While the consultation paper covers both superannuation funds and managed investment products, this article will only cover those impacting managed investment products.
In the paper ASIC proposes:
To Remove the need to disclose the operational costs of a property (in the case of a direct property fund), borrowing costs and implicit transaction costs. ASIC believes these disclosures whilst may be of interest (at a minimum) to analysts, professional investors and fiduciaries, might not be of general interest to consumers.
As such, key changes include:
1. The proposal is that all costs that are not explicit transaction costs be included in admin costs or management costs for the managed investment product.
2. The removal of distinction between performance fees and performance-related fees. Performance fees will now include amounts calculated by reference to performance of a product, part of a product, an interposed vehicle or part of an interposed vehicle. Moreover, the amount of performance fees to be included in the ‘Fees and Costs Template’ to be renamed ‘Management Fees and Costs’, will now be calculated by reference to the average of the performance fees that accrued in the product, option, interposed vehicle or part in each of the previous five financial years.
3. Require the ‘Fees and Costs Templates’ (now to be called the ‘Fees and Costs Summaries’)to contain an additional footnote referring to performance fees and maintain the requirements for the ‘Additional Explanation of Fees and Costs’ (to be renamed ‘Fees and Costs Details’)
4.Clarification of the position on costs paid out of reserves, and give effect to this proposal by amending the definitions of ‘Investment Fee’ (to be renamed ‘Investment Fees and Costs’) and ‘Administration Fee’ (to be renamed ‘Administration Fees and Costs’) to make it clear that these fees and costs include costs met through the use of reserves.
5. Improving the explanation in RG 97 of the importance of fees and costs disclosure and improving the disclosure of amounts paid by third parties or offset against other amounts
Finally, as per McShane’s recommendation for greater industry and ASIC collaboration, ASIC also plans to work with industry to make the presentation of fee information more consistent, and reduce the differences between how participants disclose information about fees and costs.
ESV can help you with disclosures included in your product disclosure statement, review and verify calculations included. Should you have any questions in relation to the above, please contact your engagement partner on 02 9283 1666.