Proposed changes to fees and costs disclosure for managed investment products – what product issuers need to know

WHO SHOULD READ THIS

• Issuers of managed investment products.

THINGS YOU NEED TO KNOW

• ASIC has proposed several changes to the way issuers of managed investment products are required to disclose fees and costs information in PDSs.

WHAT YOU NEED TO DO

• Comments on CP 308 are required to be submitted to ASIC on or before 2 April 2019 if you would like to make a submission.

ASIC has released Consultation Paper 308 Review of RG 97 Disclosing fees and costs in PDSs and periodic statements (CP 308).  The consultation paper is in response to REP 581 released in July 2018 and proposes to make a number of changes relating to fee disclosure obligations in product disclosure statements (PDSs) and periodic statements for managed investment and superannuation products.

The key changes applicable to PDSs for managed investment products are set out below.

Changes to the current fees and costs disclosure format

ASIC proposes to modify the current fees and costs table to:

• rename the ‘fees and costs’ template as ‘fees and costs summary’;
• rename ‘management costs’ as ‘management fees and costs’; and
• separate the costs into ‘ongoing annual fees and costs’ (with line items comprising management fees and costs, and net transaction costs) and ‘member activity related fees and costs’ (with line items comprising establishment fees, contribution fees, buy-sell spread, withdrawal fees, exit fees and switching fees).

The ‘net transaction costs’ line item will include explicit transaction costs and counterparty spreads in the calculation, net of any amounts recovered in any buy–sell spread charged.  ASIC believes that displaying the fees in this way is important because in most cases, consumers rely on this data as part of their comparison of products.

As the example of annual fees and costs table covers one investment option, where a managed investment product has more than one investment option, ASIC also proposes that the fees and costs for those other options be disclosed in an abbreviated ‘cost of product information’ table.

These changes are intended to assist investors in better understanding the fees and costs of their investment

Changes to the treatment of performance fees

Removal of distinction between performance fees and performance-related fees

ASIC has proposed to amend the requirements for performance fees disclosure to include amounts calculated by reference to performance of a product, part of a product, an interposed vehicle or part of an interposed vehicle. This is in line with ASIC’s view that there is no difference between a performance fee charged for the product or in the underlying investment vehicle.

Calculation and disclosure of performance fees

ASIC has proposed that the calculation of fees should be as follows:

• the average of the performance fee charged for the last five financial years;
• if not in place for the previous five years, the number of years in which there was a performance fee; or
• where offered in the current year, the issuers most reasonable estimate of the performance fee in that year

Inclusion of counterparty spreads

ASIC also proposes that counterparty spreads should be included in calculating transaction costs.  However, ASIC is seeking industry feedback about how this concept should be designed and which products and markets should be included in the proposed change.

What’s next for CP 308?

Comments on CP 308 are required to be submitted to ASIC on or before 2 April 2019.  Following ASIC’s response to these submissions, a revised Class Order 14/1252 will likely take effect in the second half of 2019.  For further information on the consultation and how to make a submission, please see ASIC’s RG 97 consultation page.

For further information on any of the issues raised in this alert please contact:

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.