Superannuation and managed fund investors need improved fee disclosure to boost their understanding of investment products, writes ASIC commissioner Greg Tanzer.
By start of February 2017, super trustees and fund managers will have fully transitioned to a better, more consistent approach for superannuation and managed funds fee and costs disclosure.
This will help make it easier for consumers to see exactly what they are paying – and therefore be empowered to make the best choices.
ASIC would be the last organisation to say fees and costs are the only important factor in choosing how and by whom your superannuation and investments are managed. Performance after fees and costs is key.
Asset allocation, investment objective and strategy, and risk are relevant to consumers in making a judgement whether the super fund or managed fund is likely to meet their needs, as is the quality of the trustee or fund manager.
Additionally, other things can be important to some consumers, such as whether they are getting advice or a good online experience with their fund.
It is likely that disclosed fees and costs will go up quite a bit for many funds. This won’t mean that consumers are paying more - it is just that the figures will reflect more accurately the costs that affect the returns, including transaction costs and investment management costs.
After the transition period, we will undertake compliance reviews to check how well issuers are complying with the disclosure requirements.
In the first few months, ASIC will take a measured approach, recognising the challenging realities of change, but if we identify deliberate gaming of the disclosure requirements we will take the appropriate action.
By making it easier to compare fees and costs between funds, better disclosure can help consumers make better choices.
Fees and costs are important because while investment returns can go up and down, every year consumer returns are going to be affected by fees and costs.
While fees and costs are important, it makes more sense for comparing similar products. Some funds, for example, just give access to a menu of investments that a consumer or their planner chooses – these funds are not providing the same service of funds management and so they shouldn’t be compared based on fees and costs except with other similar products.
Also, some types of investments are more expensive than others in terms of costs. Investing in property can carry higher costs than shares, but property investments can also be a valuable part of a diversified portfolio in a fund. So when comparing fees and costs, consumers should look at funds with similar asset mixes.
The improvements we are making should mean fairer competition. Consumers can help themselves by seeking to understand what is being disclosed and how it compares, and super trustees and fund managers will have to ensure they have effective systems to gather information about fees and costs from their investment managers so they can provide reliable information.
The disclosure requirements call for some standardised information in Product Disclosure Statements (PDS); we know it can look complicated.
To sum up the effect of the fees and costs, there is an example in the PDS that adds up the different fees and costs that may apply and provides a figure that you can use as a starting point - this is perhaps a good place to look first.
It is also important for consumers to have a look at their annual statement showing their account balance and how much fees and costs they paid during the past year.
The new disclosure standards will flow through to the annual statements for statements given to consumers from 2018.
Super trustees and fund managers have supported the idea of better, more consistent disclosure, and worked with us as we have been making these important changes.
We have been working with them and giving them sufficient time to make the changes to their product disclosure, and think superannuation trustees and fund managers realise the importance of improving their disclosure so consumers can trust your investment.
Industry can also do their part to further improve fees and costs by developing their own standards that can complement our work.
It’s important for industry to work together to support effective disclosure of fees to demonstrate its strong desire to reduce the harm that inaccurate and inconsistent disclosure can cause, and ultimately this will underpin greater public trust in superannuation.
Greg Tanzer is a commissioner at ASIC.