Report of the independent reviewer of the RG 97 fees and costs regime

Insights26 July 2018

On 24 July 2018, ASIC released Mr Darren McShane’s independent review report of the fees and costs regime set out in the Corporations Act 2001, Corporations Regulations 2001, ASIC Class Order [CO 14/1252] and ASIC Regulatory Guide 97 (collectively, the ‘RG 97 fees and costs regime’).

Key points

ASIC released Mr Darren McShane’s report into the RG 97 fees and costs regime.
The report makes a number of significant recommendations for ASIC to consider and recommends that ASIC consult with industry to develop changes to the RG 97 fees and costs regime.
ASIC stated that it agrees changes to the fees and costs disclosure are in the interests of consumers and industry.
ASIC also stated that it will release a consultation paper with ASIC’s response in first half of the financial year 2018-2019, and will continue to take a facilitative approach in relation to the compliance with the RG 97 fees and costs regime.

Background

In November 2017 ASIC commissioned Mr Darren McShane to prepare an independent review of the RG 97 fees and costs regime.

In preparing the report, Mr McShane consulted with over 120 different stakeholders and considered the approaches to fees and costs disclosure in other jurisdictions.

The report, known for ASIC purposes as ASIC Report 581, sets out Mr McShane’s review of the RG 97 fees and costs regime.

Summary of key recommendations

The report has an extensive analysis of the policy settings, and also considers particular fees and costs issues raised by industry.

The report, which is 232 pages long, has 34 recommendations. The recommendations relate to both the way that fees and costs are to be presented to investors as well as the kinds of fees and costs to be included in the disclosures.

Set out below is a high level summary of relevant recommendations:

ASIC undertake a feasibility study into whether it or another government agency could provide, or sponsor, the development of (1) a publicly accessible, consumer facing facility providing fee and cost information extracted from Product Disclosure Statements that can be searched and compared on a range of criteria; and/or (2) data about average ‘Cost of Product’ figures for specific investment option types that can be included as a reference figure in example of annual fees and costs (‘Fee Example’).
There should be a reduction or elimination of disclosure requirements for disclosures for managed investment products and superannuation products.
There should be modifications to disclosures in Fees and Costs Template and Fee Example for both for managed investment products and superannuation products.
The annual fee example is extended to all investment options by the calculation and disclosure of an abbreviated Cost of Product’ figure. The investment menu documents for Platforms should also include abbreviated ‘Cost of Product’ figures for accessible managed investment schemes.
There should be consequential changes to the disclosure requirements of periodic reports.
There should be mandatory disclosure of fees and costs of accessible investments in platform Product Disclosure Statements and periodic statements.
Fees and costs disclosures for platform products should be reviewed to help consumers make informed decisions about the relative costs of investing directly or indirectly.
Particular fees and costs items that have caused differences of opinion in the industry should be revisited in the context of a proposed new categorisation of fees and costs items.
Rules about the calculation and disclosure of transactional and operational costs, performance fees and performance-related fees should be developed having regard to specific disclosure principles.
ASIC should develop and implement a surveillance strategy to help deal with the claim by industry participants that competitors are not disclosing on the same basis.
Specific items in the legislation should be re-drafted along recommended drafting principles.

Next steps

In its response to the report, ASIC states the following:

‘ASIC agrees changes to the fees and costs disclosure are in the interests of consumers and industry, and is keen to ensure any changes are practicable for industry while providing transparency and useable comparability for consumers’.

ASIC also stated that it will release a consultation paper with ASIC’s response in first half of the financial year 2018-2019, and will continue to take a facilitative approach in relation to the compliance with the RG 97 fees and costs regime. Fund managers, however, should continue to comply with the current regime in the meantime.

We will review the report in detail and advise clients accordingly. If you have any questions, please contact us.