Super funds, ASIC under pressure to bring transparency on fees, costs

The corporate watchdog is under pressure to bring more transparency to the superannuation fees and costs.

The ASIC report finds fee disclosure in the superannuation and managed ­investment scheme industry has been haphazard, opaque and open to gaming.

The corporate watchdog is under pressure to bring more transparency and rigour to the fees and costs being charged to superannuation members, after a review found consumers were being dudded by the wealth management industry’s poor disclosure of fees.

The Australian Securities & ­Investments Commission released the long-awaited review of the disclosure rules, known as RG97, which was combed over in fine detail by the architect of Hong Kong’s pension regulation system, Darren McShane. ASIC was forced late last year to backflip on the introduction of the controversial new laws after The Australian raised concerns about the exemption of certain costs from the ­regime, which potentially allowed companies to hide high fees for certain investments, such as ­unlisted property.

The report, at more than 200 pages, finds fee disclosure in the superannuation and managed ­investment scheme industry has been haphazard, opaque and open to gaming by funds managers looking to minimise their published fees.

Mr McShane has put pressure back on ASIC, urging the regulator to potentially create a “publicly accessible, consumer facing” comparison tool that would bring consistency and transparency to investment fees, after hearing wide-ranging concerns that the disclosure laws could create an uneven playing field based on which funds were complying faithfully with the regime.

Superannuation assets as a per cent of GDP

Feedback across the sector suggested that all market participants “disclose fees and costs in the same way”, Mr McShane said.

“Many expressed concerns that their competitors were not doing so. Many concerns were ­expressed about how performance fees were being calculated and disclosed,” he said. Mr McShane consulted more than 120 industry players during the ­review.

The review comes as the retail funds management industry gathers in Melbourne today for the start of a two-day conference, at which Mr McShane and executives from ASIC and the prudential regulator will appear. ASIC boss James Shipton and Financial Services Minister Kelly O’Dwyer will address the Financial Services Council forum tomorrow.

Among numerous technical recommendations, Mr McShane proposed an alignment of disclosure rules between superannuation mangers and managed investment schemes, and that ASIC should be responsible for scrutinising product disclosure statements to ensure companies are complying with the law. He also said there needed to be consumer education about fees and returns to prevent a race to the bottom.

RG97 was the product of four years of consultation after the watchdog found significant under-reporting of investment fees across the wealth management industry.

A key plank of the proposals was a requirement to disclose ­“indirect” costs — fees collected by different investment vehicles that are “interposed” between an investor and their assets, such as those between the super fund and an equities fund manager. However, several of the largest not-for-profit funds were incensed by what they saw as a decision to ­exempt investment platforms from the same disclosure. About $500 billion of super assets are ­invested on platforms, which are favoured by AMP and the big four banks and give consumers a range of investment options and plans.

Mr McShane’s report comes at a testing time for the superannuation and funds management, as the $2.6 trillion super sector gears up for a bruising round of hearings at the royal commission. Fees and returns will likely come under pressure as the royal commission scrutinises relationships between trustees and financial advisers and platform fees for a fortnight from early next month.

Matt Linden, public affairs ­director at Industry Super Australia, which campaigned for more rigour in the lacklustre disclosure regime, said a “significant amount of good work” went into the ­report. “This report shows fee disclosure is far too complicated for experts, let alone consumers,” Mr Linden said. “We remain concerned that the business practices of platforms are being accommodated rather than prioritising comparable and understandable disclosure for consumers — but we will continue to work with ASIC as it responds to the report.”

Australian Institute of Superannuation Trustees chief Eva Scheerlinck said the report “vindicates” concerns about fee disclosures, but said any form of comparison tool needed to show long-term net returns, which were the “ultimate driver” of ­retirement outcomes. “There is no point having disclosure if it is not meaningful for consumer,” Ms Scheerlinck said.

Financial Services Council chief executive Sally Loane said she welcomed the report.

“The FSC strongly supports transparency and strong governance to deliver best outcomes for consumers and welcomes recommendations focused on simplicity and ease of comparability of products by consumers,” she said.

ASIC agreed that changes to fees and costs disclosure was “in the interests of consumers and ­industry” and said it would ensure any changes were feasible for the funds management sector and useful for consumers. By the end of the calendar year it will release a consultation paper outlining its response to the McShane report.

ASIC had previously stressed that if a super trustee advertised a platform option without making the overall costs clear, the regulator would consider it misleading advertising.

Westpac’s wholly owned wealth arm, BT Financial, has sent shudders through the sector after it outlined plans this week to ­introduce a new cut-price 0.15 per cent asset administration fee for customers invested through the BT Panorama Investments and BT Panorama Super platforms, along with a flat account fee of $540 a year. On an average ­account, the move represents a fee cut of 40 per cent.

Consumer advocates have ­argued the current disclosure obligations regime that dominates ­financial regulation is not protecting consumers, as much information provided to companies is not meaningful to members and provided at the wrong time.

The Productivity Commission’s recent draft report into the super system, which found ­entrenched overcharging and ­underperformance by for-profit funds, said the Australian Prudential Regulation Authority and ASIC were hamstrung by poor quality data and comparable statistics provided by the industry.

Last year, ASIC said it would delay the MySuper “choice” product comparison dashboard for two years until 2019, bowing to industry lobbying amid problems finding common ground between bank-owned retail funds and the union and employer-backed ­industry funds. Both sides of the industry are in dispute about ­investment performance and returns and the level of fees charged.