ASIC’s Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements (RG 97) sets out how ASIC regulates disclosure of fees and costs by issuers of superannuation and managed investment products in Product Disclosure Statements (PDSs) and periodic statements under the Corporations Act 2001 (Cth) and Corporations Regulations 2001 (Cth) (Regulations).
Recently, ASIC engaged an external expert review to ensure that ASIC’s legislative modifications and guidance on the disclosure regime best meet the objective of increased transparency for consumers. The resulting Report 581 was published in July 2018 and included a number of recommendations for updating RG 97.
On 8 January 2019, ASIC released Consultation Paper 308 (CP 308) and a draft of the updated RG 97 in response to Report 581, proposing several changes to the fees and costs disclosure requirements for financial service providers. These alterations will affect the way that financial service providers prepare their PDSs and periodic statements. Broadly speaking, ASIC’s intention is to simplify the fee and cost disclosure regime for consumers.
What is in CP 308?
CP 308 considers several proposals made by the external reviewer and has divided the proposals into four separate categories. These are:
Recommendations ASIC proposes to adopt which require amendments to Schedule 10 of the Regulations (Schedule 10).
Recommendations ASIC proposes to adopt that do not require amendments to Schedule 10.
Recommendations and observations that ASIC does not propose to adopt at this stage.
Further amendment proposals ASIC has identified during consideration of Report 581.
These categories each contain numerous proposals with ASIC’s implementation strategy for each item.
What Are The Changes?
A key proposal is to modify the ‘fees and costs template’ for superannuation products contained in Schedule 10. This would include the presentation of all administration fees and costs as a one line item, the removal of advice fees as a line item and the grouping of ‘ongoing annual fees and costs’ separately from ‘member activity related fees and costs’. These changes are intended to simplify the information provided to consumers in an effort to improve consumers’ understanding of fees and costs and assist consumer decision making.
ASIC also proposes to modify the fees and costs templates for managed investment products to change ‘management costs’ to ‘management fees and costs’ and place this line item at the top of the fees and costs template.
Changes to Schedule 10 would be required to give effect to the proposed changes to the fees and costs templates.
ASIC also proposes to require ‘Cost of product information’ to be disclosed in a number of ways. This includes extending the current ‘example of annual fees and costs’ to include the calculation and disclosure of abbreviated cost of product information. Significantly, it also includes requiring that the cost of product information for a full PDS be disclosed in the PDS and not permitting incorporation of cost of product information by reference. This will be achieved by not requiring the cost of product information to be included in the body of shorter PDSs and instead requiring that it be provided as part of the fees and costs information that must be disclosed in accordance with Schedule 10.
In addition, ASIC is seeking to amend the requirements for periodic statements to be simplified. This change stems from the position that periodic statements appear overwhelming to consumers in their current form. Presenting fees in a standardised form across three lines with headings ‘fees deducted from your account’, ‘fees and costs deducted from your investment’ and ‘total fees and costs you paid’ will provide clarity to consumers.
ASIC has commented on the importance of industry bodies representing advisers to clarify how fees and costs disclosure should be used when giving advice about choice of products. Furthermore, ASIC proposes removing some guidance currently contained in RG 97 with the intent of improving consistency of the fees and costs template.
ASIC believes that implementing the proposals in CP 308 will reduce the differences between superannuation and managed investment product fee disclosure to enhance consumer understanding of fees and costs charged by product issuers.
What Does This Mean for Financial Service Providers?
Once ASIC’s proposals are finalised and changes made to the regulatory framework, particularly to Schedule 10, superannuation and managed investment product issuers will need to take steps to ensure that their fee disclosure is compliant. Industry participants should also note that ASIC intends to implement a surveillance strategy to ensure that any changes to the regulatory framework are reflected in future disclosure documents.
ASIC has invited submissions in response to CP 308 by 2 April 2019.
If you have any questions about your fee and cost disclosure obligations, please do not hesitate to contact Hillary Ray or a member of our Financial Services team.