RG 97 – Independent report makes fee & cost disclosure recommendations

ASIC has released its independent report (the Report) in respect to RG 97 which it commissioned on 1 November 2017 in response to strong feedback from industry regarding challenges associated with the implementation of RG 97 and ASIC Class Order CO 14/1252.

The author of the report, Mr Darren McShane engaged more than 120 industry stakeholders to compile his 232 page report, which fundamentally makes 34 recommendations of varying levels of significance, surrounding fee transparency.

In utilising a best practice benchmarking methodology, the report found that in comparison with other disclosure regimes around the world, Australia’s is relatively more onerous in a range of areas.

In an interesting and realistic assessment of the dilemma that confronts consumers when looking to compare products, the report conceded that they can do so only by comparing Product Disclosure Statements (PDS’) which it added is “a laborious and time-consuming exercise that most consumers would likely avoid or short-cut”.

Specifically, the report recommends that ASIC undertake a feasibility study into whether it or another government agency could provide, or sponsor, the development of:

• 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
• 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’).

In addition, the report recommended, in the context of managed investment products, that:

• disclosure requirements be curtailed, with accompanying modifications to disclosures in fees and costs templates and examples, and periodic reports;
• the annual fee example be extended to all investment options by the calculation and disclosure of an abbreviated cost of product figure;
• 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; and
• specific items in the legislation should be re-drafted along recommended drafting principles.

Such observations support the objective of the overall review to achieve disclosure outcomes that can better support consumers in making more confident and informed value-for-money decisions.

What next?

ASIC has conveyed that it will carefully consider the recommendations made in the report and in the first half of the 2018-19 financial year will release a consultation paper setting out ASIC’s proposed response to the issues raised in the report.

In the meantime ASIC has confirmed it will continue to take a facilitative approach in relation to the compliance with the RG 97 fees and costs regime, and re-emphasised the importance of ensuring that fee and cost disclosure not mislead consumers. In other words, business as usual.

We will continue to keep you advised of developments as they occur.