The protracted saga around ASIC Regulatory Guide 97 Disclosure of fees and costs in PDSs and periodic statements (RG 97) seems to have come to an end with ASIC's release of presentation material from the RG 97 industry roundtable sessions held in February this year.
The material includes ASIC's responses to common questions asked at the sessions. ASIC has made it clear the RG 97 review is complete and there will be no further changes to its policy.
While the revised RG 97 regulations and ASIC policy are an improvement, some issues raised by industry over the past five years remain.
In this article, consultant Jeunesse Meldrum sets out the key dates, the good news and the bad news about where ASIC's RG 97 policy has landed.
PDSs dated on or after 30 September 2020 must comply with the revised RG 97 regulations and ASIC policy. You cannot opt in early.
Periodic statements for reporting periods commencing on or after 1 July 2021 are required to comply with the revised RG 97 regulations and ASIC policy. You can opt in early in some cases for reporting periods after 1 July 2020.
The good news
- PDSs do not need to be reissued on 30 September 2020 solely to comply with the new RG 97 requirements.
However, ASIC does expect you to update your PDSs in a timely manner, and if for another reason you update your PDSs because of a material change, ASIC will expect your PDS to meet the new requirements. ASIC says it will monitor the transition to the new regime and will consider action where it finds a PDS is out of date.
- The new presentation for disclosing fees and costs for consumers is clearer.
There are new templates for the fees and costs table and the annual example of fees and costs. The 'indirect cost ratio' is replaced by 'cost of product'. The 'cost of product' comprises contribution fees, management fees and costs, performance fees and transaction costs.
- The new guidance for fund managers is clearer.
The new law is contained in one place: a consolidated version of Schedule 10 of the Corporations Regulations 2001. Also, the rewritten RG 97 is clearer and easier to read.
- Implicit transaction costs and market impact costs no longer need to be disclosed.
Happily, common sense prevailed and ASIC has conceded these costs have limited value for users and it was unclear how they were to be calculated and reported meaningfully and consistently.
- Transaction costs no longer include property operating costs and borrowing costs. This is welcome news for property funds.
The bad news
- If you issue a PDS before 30 September 2020, it will need to comply with the 'old RG 97'.
ASIC was asked at the roundtable sessions to allow early opt in, but has refused. This means if you issue a PDS before 30 September 2020, you need to update your PDS with new fees and costs information soon after; this is likely to be confusing for investors.
- ASIC expects most PDSs will be 'rolled' each year.
ASIC says this is to ensure a PDS is up to date at all times and is not misleading. This may be why ASIC has refused to allow early opt-in, because they expect you to update the fees and costs information in your PDS regularly.
- The interposed vehicle test remains unchanged.
The subjective PDS test limb of the interposed vehicle test remains. Therefore, it remains possible for two fund managers with similar investment mandates and similar portfolios to adopt a different approach to fees and costs disclosure based on how they describe their product in their PDS and the views they form about how retail investors view their product. While this approach seems contrary to the drive for consistency in disclosing fees and costs, it appears the issue is here to stay.
- Stamp duty cannot be separated out in the disclosure for property funds.
Stamp duty must be disclosed as a transaction cost even if it is unusually high in a particular year but not in another due to the number of property transactions. This may impact property investment decisions.
- Performance fees must be estimated in the first year of a fund by reference to reasonable estimates.
This remains a challenge for new funds, given the statutory requirement and ASIC's related policy, in respect of prospective financial information needing reasonable grounds.
For more background information click here for ASIC's updated RG 97 guidance on fees and costs (November 2019) and you can also read our previous article in Fundamental.
We can help
Our lawyers understand the implications of the good and bad news and can advise you on what steps you need to take next. Please contact our Funds Management team if you have any queries or require assistance.