After reviewing fee disclosure practices, ASIC has
tightened disclosure requirements for superannuation and managed
investment scheme products under new Class Order [CO
Briefly, the Class Order has clarified the disclosure
obligations under Schedule 10 of the Corporations
Regulations (Cth) to ensure consistency with the Stronger
Super reforms introduced in July 2013. ASIC has revised the
definitions of indirect costs and switching fees, and has inserted
a new definition of "interposed vehicles", which are a
mechanism often used by investment funds to invest in other funds.
The Class Order also requires that all managed investment scheme
and superannuation products include a consumer advisory warning at
the front of all Product Disclosure Statements.
The Class Order will apply to all PDSs for superannuation and
managed investment products from 1 January 2016.
DISCLOSURE OF COSTS OF INVESTING IN INTERPOSED VEHICLES
Superannuation funds and managed investment schemes have often
allowed clients investment opportunities in other funds, allowing
for greater access to a broader asset pool. These "interposed
vehicles" often have costs associated with them, and after
reviewing the current fee disclosure obligations, ASIC found them
insufficient to capture the complexity of this class of financial
product. The reforms define an interposed vehicle as an investment
option other than a MySuper product in a body, trust or
partnership, other than:
a body, trust or partnership that does not predominantly carry
on an investment business and is either included in an official
list in a foreign financial market or is the ultimate investment of
the fund; or
an entity that is subject to a custodial arrangement and the
PDS allows holders of the product to give directions, instructions
or requests for particular products to be acquired.
ASIC's reforms allow the regulator to "look
through" the second investment scheme and require the fund
offering interposed vehicle products to provide in their PDS a
reflection of the costs incurred by the second entity that would
reduce the return or income from the product.
DISCLOSURE OF INDIRECT COSTS
The Class Order inserts a new Clause 101A into the
Corporations Regulations, expanding the definition of
indirect costs. These costs are now defined as any amount not
charged as a fee that the trustee of the entity "knows, ought
to reasonably know or may reasonably estimate" would reduce
the return on the product or options or reduce the value of income
attributable to the product. This is an extremely broad definition
that captures most non-fee costs associated with superannuation
funds or managed investment schemes. Indirect costs also include
the indirect costs of interposed vehicles, as well as the buy-sell
spread on derivatives. The Class Order also modifies Clause 102 of
Schedule 10 to include indirect costs within the definition of
AMENDMENT OF SWITCHING FEES
The definition of switching fee has been amended to ensure
consistency with s 29V(5) of the Superannuation Industry
(Supervision) Act 1993 (Cth) for MySuper products. For other
superannuation or managed investment scheme products, the fee
includes the amount paid or the cost recovered from a client for
transferring a member's interest from one product to
CONSUMER ADVISORY WARNINGS
The Class Order introduces a standard form consumer advisory
warning in Clause 221 of Schedule 10 of the Corporations
Regulations. This warning describes the potential cost to
clients of higher levels of product fees, and encourages clients to
negotiate lower fees where possible. The standard form warning also
provides clients with a link to the MoneySmart website. This
warning must be placed at the beginning of the fees section for all
PDSs relating to superannuation or managed investment products,
beginning in 2016. They must also be included in all periodic
statements issued after 1 January 2017.
THE NEXT STEPS
The amendments are proposed for inclusion in ASIC Regulatory
Guide 97 Disclosing fees and costs in PDSs and periodic
statements. ASIC's draft RG 97 can be found
here. ASIC invites submissions on the proposed revisions to RG
97 by 27 February 2015. If you have any questions regarding the
Class Order or the proposed amendments to RG 97, please contact a
member of our team listed in this publication.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Most awarded firm and Australian deal of
Australasian Legal Business Awards
Employer of Choice for
Equal Opportunity for Women
in the Workplace (EOWA)
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).