ASIC consults on charging different fees to different investors

ASIC has released a consultation paper proposing to remake its class order on differential fees for registered managed investment schemes.  You can access a copy of the paper here.

Key information:

  • Under the Corporations Act, responsible entities (REs) must treat members who hold the same class of interest equally
  • Most REs rely on an existing ASIC class order which allows wholesale clients to negotiate lower management fees with the RE
  • The existing class order is due to ‘sunset’
  • ASIC is proposing to retain the existing class order, but is also asking whether its policy should change to allow REs to negotiate different fees with retail clients
  • There are good reasons why REs should lobby ASIC to allow them to negotiate lower fees with retail clients as well as wholesale clients

Under the Corporations Act, responsible entities (REs) must treat members of a registered scheme who hold the same class of interest equally.  Most REs rely on an existing ASIC class order (03/217) to allow them to negotiate lower management fees with wholesale clients. The existing class order is due to expire.  ASIC proposes to remake the class order substantially in its current form as it says the class order is operating effectively and efficiently and continues to form a necessary and useful part of the legislative framework.

However, ASIC is:

  • proposing to extend switching facility relief to a registered scheme operated by a related body corporate of the RE (for example, REs in the same corporate group); and
  • seeking feedback on whether it should review its policy in relation to relief for individual fee negotiation. This relief is currently restricted to wholesale clients only.

There are good reasons why an RE might want to negotiate lower management fees with certain classes of retail investors.  For example, it may want to offer lower management fees to retail investors that come through a particular distribution source (financial planner, dealer group, employer) because of the administrative efficiencies that might arise.  At present, this option is denied to REs unless the clients are all wholesale or where they and their associates meet certain investment thresholds. CNM Legal has made a submission to ASIC, including some technical changes to the class order so that it carries across the benefits of the existing class order in their entirety.  You can download the submission here. We strongly suggest you consider making a submission on this matter.  Allowing REs to negotiate management fees with retail clients may increase capital inflows and reduce costs through improved efficiencies. If you have any questions about how to comply with the existing class order, or you would like to understand the proposed changes, then please contact Chris Mee on +61 7 3324 2960 or cmee@cnmlegal.com.au