ASIC proposes new Class Order on Fee and Cost Disclosure
Australia’s peak corporate regulator has just released a proposed Class Order that may have an impact on the PDS (Product Disclosure Statements) of MySuper, choice super and managed investment products.
Frustratingly, PDS will again need to be reviewed and if necessary, amended to comply with the new Class Order, when it is issued by the Australian Securities and Investments Commission (ASIC). The proposed Class Order was released on September 24, 2014.
Three things to note
- Responsible Entities will need to calculate the “indirect cost” of their registered schemes for the first time, as ASIC is proposing to expand that definition to apply to managed investment products, as well as to MySuper and choice super products.
- The new definition of ‘indirect cost’ will include those indirect costs that the trustee of such a product can reasonably estimate, even if the trustee does not know those costs, or it would not be reasonable for the trustee to know those costs. ASIC is proposing that, in those circumstances, the trustee should include the trustee’s reasonable estimate of the fees or costs charged in relation to interposed vehicles. Now, that’s going to be an interesting exercise given the complexities involved with interposed vehicles.
- There will be a brand new definition of “interposed vehicle” in relation to the PDS fee disclosure regime. So, if the existing investment arrangements involve an interposed vehicle or two, then the trustees of those products should review the associated fee and cost arrangements to see if any additional fees and costs will need to be included in the calculation of the new indirect cost. This means, it needs to be on a look-through basis (to be captured through reasonable estimates where the underlying fees and costs are not known).
What’s ASIC trying to do?
Following its recent report on fee and cost disclosure (ASIC Report 398, July 2014), ASIC is trying to improve consistency in fee disclosure for consumers, as well as to provide more accurate representation of the overall costs involved with these products, since ASIC has identified a significant level of inconsistency in reporting and calculation of indirect costs among different industry players.
ASIC aims to achieve this outcome by expanding the definition of ‘indirect cost’ and by introducing a brand new definition of ‘interposed vehicle’.
Next steps
The proposed ASIC Class Order is at public/industry consultation stage, and comments are due by Friday 17 October 2014 – email: feeandcostdisclosure@asic.gov.au
