It’s no secret that the new indirect cost disclosure regime for superannuation and managed funds has been problematic.
Since its inception, the Australian Securities and Investments Commission’s (ASIC) Regulatory Guide 97, known colloquially as RG 97, has raised several red flags.
Notably, there have been constant deferrals and the need for three separate ASIC Class Orders to explain the rules. But these signs merely scratch the surface of the challenges of complying with the regime.
To be fair, ASIC is trying to help.
The regulator has issued formal guidance and more informal Q&A documents. However, these were never intended to be comprehensive or detailed, and do not delve into the minutiae necessary for compliance with RG 97.
ASIC is also responding to individual questions, but these responses are not published on its website. This approach is a double-edged sword.
Many areas of RG 97 are open to interpretation. Someone who has received guidance is better placed to adopt a position consistent with their communications with ASIC.
This inconsistency is concerning, as it means that the information ultimately provided to investors may not be meaningful and certainly will not be comparable. There is also the potential to distort fee and cost disclosure, creating competitive disadvantages for the prudent.
To address these issues, I have been working with the RG 97 Industry Working Group and the Australian Institute of Superannuation Trustees to develop an RG 97 ‘toolkit’. It leverages the good work of the Financial Services Council in its Guidance Note 34.
The toolkit will cover compliance with RG 97 by managed funds and all different types of superannuation funds, with a focus on the ‘how to’ of compliance.
Topics will include:
• Common investment structures.
• An explanation of common fee types.
• Structures and diagrams for determining interposed vehicles.
• Best-practice processes to obtain the required indirect cost information from a fund manager.
• Calculation methodologies.
• Product Disclosure Statements (PDS) and other disclosures.
The toolkit will be valuable to all. While those with only limited knowledge of RG 97 will get the most benefit, the level of detail included will mean that even those with high RG 97 expertise will learn something.
The regime touches a variety of units within organisations, not just the investments team. In my observations, those organisations that are most advanced in RG 97 compliance are those that have taken a cross-discipline approach, including investments, finance, product, custody and administration.
The toolkit will include content tailored for each of these teams.
In addition to helping individual organisations, we hope the toolkit will promote a consistent industry-wide approach. Without consistency the regime will not provide consumers with clear and comparable cost disclosures.
The industry working group is aiming to release the toolkit early in the new financial year to give organisations time to use it prior to the September 30, 2017, deadline. However, the industry should expect further versions as the working group progressively settles its position on issues.
Nathan Hodge is a partner at law firm King & Wood Mallesons. He is the lead author of the RG 97 Industry Working Group toolkit.
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