In this article, associate Kristy McCluskey evaluates ASIC Consultation Paper 308, released in early January 2019, which proposes further reforms to the fees and costs disclosure regime for managed investment schemes.
The paper sets out ASIC's response to the recommendations in ASIC Report 581: an independent review of RG 97 and the fees and costs regime.
The lengthy Report contains 34 recommendations covering matters ranging from technical points about definitions and drafting, to suggestions for improvements to disclosure tools and better support mechanisms for consumers.
ASIC addresses each of the recommendations from the Report and categorises them as those it proposes to adopt (and whether amendments to the fees disclosure Schedule 10 of the Corporations Act are required) and those it does not propose to adopt.
Some key recommendations ASIC is proposing to adopt include:
Changes include moving management fees and costs to the top of the template and inserting an item for buy-sell spread. It is hoped these changes will assist investors to understand the fees and costs they will be charged.
ASIC proposes to simplify periodic statements so they contain the following three lines:
The purpose of simplifying the disclosure requirements of periodic statements is to make them easier for investors to understand the fees and costs charged.
ASIC proposes to—
The changes are aimed at striking a balance between providing information to assist investors make informed investment decisions and ensuring fees and costs disclosure is practicable for industry.
ASIC proposes the following changes to performance fees:
Additional changes to the fees and costs template and additional explanation of fees and costs in PDSs are also proposed to accommodate the above proposed changes to performance fee calculation and disclosure.
ASIC is also seeking feedback on the following additional proposals:
The indirect cost ratio is used to calculate management costs that are not deducted directly from an investor's investment and is a required input in the example of annual fees and costs.
ASIC proposes to remove the indirect cost ratio concept on the basis indirect costs for managed investment products can be added to other amounts that make up management costs for the purpose of presenting management costs in the fees and costs template, making the indirect cost ratio concept unnecessary.
ASIC proposes to maintain the current requirements for the treatment of costs associated with derivative financial products as indirect costs and include certain costs as transaction costs.
A draft updated RG 97 is annexed to the paper. Notably, the draft is restructured to separate guidance for superannuation funds from managed investment products and incorporates the additional guidance previously provided by ASIC as part of the ASIC Q&As, with a view to removing the Q&As. These changes are welcome and will eliminate confusion about the different disclosure requirements for superannuation funds and managed investment products.
A draft amended Schedule 10 is annexed to the paper. The draft clearly shows the changes proposed by ASIC to facilitate the adoption of the recommendations which arose from the Report.
Consultation on the paper, including the proposed amendments to RG 97 and Schedule 10, closes on 2 April 2019. A response to submissions on the paper is expected to be released in the second half of 2019. We will keep you up to date with further developments.