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Fees and costs disclosure in PDSs – a quick guide for the early adopters

30 August 2021

#Superannuation, Funds Management & Financial Services

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Fees and costs disclosure in PDSs – a quick guide for the early adopters

Having commenced advising some clients on ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 (ASIC Instrument) for both PDSs and member statements, it seems to make sense that I write some form of a simple guide to share. Part of this has arisen from my experience in seeing how compliance, administration and investment teams need to come together to understand how the rules apply not only to the hard quant leanings of investments but also to the interpretation of that data for member use.

And, occasionally, things can get lost in translation.

This article is designed to assist those superannuation fund trustees drafting or restructuring their PDSs to disclose fee and costs data in compliance with the ASIC Instrument. I am happy to discuss member statements another time.

What do I think about the ASIC Instrument

I think the ASIC Instrument is a welcome relief. It goes back to the pre-ASIC Class Order 14/1252 (Class Order) days by replacing Schedule 10 of the Corporations Act in its entirety, whilst maintaining the Class Order’s flavour, but making some pragmatic changes. Therefore, in terms of ease of use and clarity, it is much better.

I am glad to see the removal of indirect costs from disclosure – a concept that I am pretty sure many people outside of our world are unsure of. Likewise, the removal of property operating and borrowing costs – when I buy something from a shop, I simply want to know “what comes out of my pocket”; describing the minutiae does not change the fact that I am spending money on aspects beyond my control.

Changes to a PDS

My approach

When reading this, look through your PDS incorporated by reference document (IBR) (the bigger guide, not the 8-pager) at the same time. My thoughts will follow the usual PDS IBR order (or at least the ones I see for my clients). If you get the IBR right, the short-form document should fall into place for you.

Consumer advisory warning

Only very minor grammatical changes are introduced.

The Fees and Costs Summary for superannuation products

Minor drafting changes are introduced to the preamble.

The Fees and costs summary table

Two fee and cost components

The table divides fees and costs into two separate groups:

  • ongoing annual fees and costs (Ongoing F&C)
  • member activity related fees and costs (Activity F&C).

Ongoing F&Cs

Under the Ongoing F&Cs:

  • the line item order for investment and administration fees are reversed – administration fees are now the first line item (that has always seemed to have been the logical progression for me – it (usually) comes straight out of the account balance and anyone can understand what that means, immediately)
  • investment fees come next
  • transaction costs follow.

Administration and investment fees are now referred to as “administration fees and costs” and “investment fees and costs” – they capture all fees and indirect costs not otherwise disclosed in the table.

Activity F&Cs

Under the Activity F&Cs:

  • buy-sell spreads and switching fees are still disclosed
  • the advice fees line item is removed
  • other fees and costs remain
  • the indirect cost ratio (ICR) line item is removed. The ICR is removed because these costs are captured in the Ongoing F&C disclosure.

Questions relating to the Fees and costs summary table

1. Is the performance fee disclosed in the table?

Yes, in two ways:

  • it is bundled into the investment fees and costs line item
  • it also needs to be separately disclosed for the MySuper product. 

2. Where does it say that you need to disclose the performance fee in the table?

In terms of bundling – both definitions of “investment fees and costs” capture performance fees, so these need to be bundled in your disclosed data.

In terms of a separately disclosed performance fee for the MySuper product, footnote 2 to the Fees and costs summary spells out what you need to do – a zero or positive performance fee must be disclosed in the footnote and the Additional explanation of fees and costs needs to explain the calculation. In other words, the MySuper performance fee is bundled in one part and made explicit in another.

3. Did you say “both definitions of investment fees and costs”?

Yes, but that has always been the way (at least since December 2014). The definitions in Schedule 10, clause 101 are designed to assist you in how you collect and calculate numbers. The Schedule 10, clause 209A definitions simply are the explanatory definitions that are disclosed in the PDS.

4. Do trustees need to disclose 5 years’ worth of performance fees?

No. You need to disclose a performance fee “averaged over the previous 5 financial years”, not list performance fees for each of the last 5 financial years.

The annual example of fees and costs

The initial explanation has minor amendments.

The example is the aggregation of the Ongoing F&C for the MySuper product.

The explanation of how these amounts are deducted has been amended. And if a member is charged both a flat administration fee and an asset-based administration fee, there is alternative prescribed drafting.

Cost of product

PDSs need to disclose the annual cost of each investment option by aggregating the Ongoing F&C for each investment option based on a representative member holding the option. In other words, the calculation is the same as for the annual example of fees and costs for the MySuper product, but the disclosure is less complex.

Please note, this disclosure is not a proxy for investment option fees and cost disclosure. This disclosure simply tells a member what they pay if they put $50,000 into any of the investment options over one year.

Additional explanation of fees and costs

Definitions

Many of the Schedule 10, clause 209A definitions contain consequential amendments.

There is a new definition of “Transaction costs”.

Performance fees

The calculation of fees and costs for each investment option needs to include performance fees. As stated above, these are averaged over 5 financial years.

This section needs to disclose how the performance fee is calculated. The performance fee must also be separately disclosed for each investment option (see Schedule 10, clause 209(b)(v)).

Specific borrowing and property operating costs disclosure no longer apply.

Any further questions?

If you have any questions, please contact us.

Author: Luke Hooper

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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