Funds management update: important changes to fee and cost disclosure
Key points:
Changes will be made to the fee and costs table
New defined terms
Costs of interposed entities clarified
Compliance for all products in the market by 1 July 2015
“All product disclosure statements in the market from 1 July 2015 will need to comply with the new class order. For most issuers, that will mean revising and reissuing all their product disclosure statements prior to that date.”
The Australian Securities and Investments Commission (ASIC) has released a draft class order for consultation which seeks to make
changes to the way fees and costs are disclosed in product disclosure statements.
The purpose of the changes is to provide increased clarity to product issuers about how fees and costs should be disclosed, thereby seeking to provide investors with consistent cost disclosure across products.
The changes have sought to address issues identified in ASIC Report 398 Fee and cost disclosure: Superannuation and managed
investment products which was released in July this year.
In particular, the class order seeks to address inconsistencies in the way the costs of interposed entities are disclosed.
Since the enhanced fee regulations commenced in 2005, there have been different views about how the costs of interposed entities should be disclosed. “Interposed entities” in this case is a reference to underlying investment vehicles in which a fund might invest (underlying funds). Some issuers have included them in their calculation of “management costs”, whilst others have excluded them on the basis that the management cost of an interposed entity is a cost that an investor would incur if he or she invested directly in the underlying fund (a specific exclusion from the definition of “management costs” under clause 102 of Schedule 10 of the Corporations Regulations 2001).
ASIC has now sought to clarify its long held view that failing to disclose the management fees of underlying funds is inconsistent with the enhanced fee disclosure regulations by amending the regulations by class order to specifically include references to the management costs of interposed entities. Other minor changes have been made, including changes to the consumer advisory warning for managed funds.
All product disclosure statements in the market from 1 July 2015 will need to comply with the new class
order. For most issuers, that will mean reissuing all product disclosure
statements prior to that date.
If you need assistance complying with the new requirements, then please contact us.