Standoff over RG 97 review

Sally Rose

By

06/12/2017

EDITOR’S LETTER | The Australian Securities and Investments Commission’s deeply unpopular ‘RG 97’ rules are destined to preoccupy superannuation regulatory compliance teams for a third year running in 2018.

A collective sigh of relief could be heard in November when ASIC announced a review of the regime just weeks after it had come into effect.

For a brief moment, some pondered if swathes of the much-maligned Regulatory Guide 97: Disclosing Fees and Costs in PDSs and Periodic Statements might be headed for the dustbin.

But it is hard to imagine how, after so much signalling and argy-bargy, the regulator could step back from the new rules in any meaningful way without losing face.

The review will probably lead only to yet another extension on the deadline for compliance, plus a few minor tweaks (mostly likely around the most problematic areas of disclosure, such as reporting property management costs).

That is a shame, because RG 97 is a classic case of good reform intentions gone horribly pear-shaped.

Its aim was to usher in a period of greater transparency for consumers, an idea that is very hard to argue with in principle. But the practical realities are far more complex.

For one thing, it is a pretty well accepted fact that making financial institutions produce longer reports that no one outside their compliance department reads is a lousy way to engage consumers. Especially given various studies suggest nearly half of all Australians don’t even know where their superannuation is or how much they have – let alone whether they are in the right investment option and have an appropriate level of insurance cover.

Fees matter. A lot. But not as much as net returns, so massive data dumps on the make-up of fees and costs are not particularly informative.

Inconsistent application of the requirements is another problem.

ASIC, like the government, has insisted that RG 97 is designed to apply evenly across the industry and retail fund sectors – but it is unfathomable how this can be true when products sold via (bank-owned) platforms are exempt.

Fixing this is the most important thing ASIC could do if it truly wishes to make it easier for the general public to compare the value for money investment fees represent across the super industry.

Despite there being much ASIC could have done to better manage the design and consultation of RG 97, industry players are not without blame in this debacle. It has been frustrating to see many funds take a disingenuous approach, crying
‘it’s all too hard’.

Yes, RG 97 will make some investment strategies appear more expensive. If the management and trustees of a fund believe that strategy is in the best interests of members, then they are simply going to have to find a way to explain that.

Investment Magazine editor Sally Rose will facilitate a panel discussion on the topic, ‘RG 97: More than ticking the boxes’ at the upcoming Investment Operations Conference, to be held in Sydney February 20, 2018. For details see the event website