It just wouldn’t be June in the superannuation industry without some regulatory uncertainty with 1 July approaching. Thankfully, ASIC has released guidance clarifying some of the uncertainties around disclosure obligations for superannuation fund trustees.
ASIC guidance for disclosure on superannuation websites1
ASIC has released guidance to help superannuation trustees disclose information about their funds and trustees on their websites as required under section 29QB(1)(a) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) and related regulations. From 1 July 2014, trustees must actively publish on their websites:
- details of their executives, including remuneration, under SIS Regulation 2.37; and
- fund product disclosure statements, governing rules, actuarial reports and summaries of significant events that have occurred over the past two years under SIS Regulation 2.38.
Section 29QB(1)(a) requires this information to be publicly available and up to date ‘at all times’.
ASIC’s Regulatory Guide 252 Keeping superannuation websites up to date (RG 252) states that a website will be treated as being up to date if the information is updated:
- within four months for information on remuneration; and
- within 20 business days for the other ‘triggers’ that create disclosure obligations.
These time frames are referred to as a 'safe harbour', which means that trustees will be viewed as complying with the law if they update their website within these time frames.
RG 252 sets out in a useful table format the various events, prescribed details, ‘triggers’ and timelines that apply to the disclosure obligations under SIS Regulations 2.37 and 2.38. The table would serve as a useful inclusion in trustees’ compliance manuals.
ASIC releases information sheet on super fees and costs disclosure2
ASIC has also released an information sheet on fees and costs disclosure requirements for superannuation trustees. The requirements are part of the Government’s Stronger Super reforms and commence 1 July 2014.
Information Sheet 197 Fee and cost disclosure requirements for superannuation trustees (INFO 197) seeks to clarify ASIC’s views on some of the more contentious aspects of the new fees and costs disclosure, including in relation to the calculation of indirect costs and how performance and advice fees should be disclosed.
Further, INFO 197 confirms that ASIC will continue to take a ‘facilitative approach’ to compliance with fees and costs disclosure requirements until 1 July 2015 for superannuation funds and managed investment schemes. ASIC states that it will ‘take a measured approach where inadvertent breaches arise or system changes are underway, provided that industry participants are making reasonable efforts to comply.’
Other notable aspects of ASIC’s guidance in INFO 197 are:
- consumer advisory warning: The mandated consumer advisory warning states, ‘Your employer may be able to negotiate to pay lower administration fees’. ASIC has confirmed that this must be included in superannuation products’ PDSs, but issuers of managed investment products do not need to include the statement in their PDSs. This is sensible, given the statement is completely irrelevant to investors in managed investment schemes.
- double-counting and look through of ICR: ASIC will undertake further consultation on key aspects of fees and costs disclosure, including in relation to issues of double-counting (ie, where under a technical interpretation of the law, a fee might have to be included in more than one item in the fees and costs table because, say, it meets the definition of both an investment fee and an indirect cost) and look-through arrangements in indirect costs. It will then undertake a comprehensive update of its fees and costs disclosure guidance in Regulatory Guide 97 - Disclosing fees and costs in PDSs and periodic statements.
- separate fees and costs tables for each product: ASIC expects that, given the law requires that a superannuation trustee must include in the PDS a fees and costs table for each MySuper product and Choice product of the superannuation fund, trustees will disclose a separate fees and costs table for ‘each MySuper product and Choice product’. Many trustees are including a fees and costs table for the fund’s MySuper or (if the fund is not authorised for MySuper) balanced investment option in the short PDS for the fund, but then including only a single additional fees and costs table in the material that is incorporated by reference into the PDS which discloses the fees and costs for all the other products offered by the fund. ASIC’s position that an issuer must include a separate fees and costs table for each ‘product’ offered by the fund could prove problematic for platforms and other issuers that offer a number of products with different fee structures within a single disclosure document, although some would already disclose the fees and costs for each ‘product’ separately.
- indirect costs: Indirect costs are any amount that the trustee knows, or reasonably ought to know, will directly or indirectly reduce the return on investment of a member, where this amount is not charged to the member as a fee. ASIC states that ‘returns on investment may be income, capital gain or a combination of both. Costs that reduce these returns will be:
- costs that are deducted from the return before it is received in the common fund which includes the member’s investment (e.g. brokerage on a share sale or a property management fee based on the gross rent collected)
- costs that are deducted from the common fund which includes the member’s investment itself (eg a trustee’s operating costs or a management fee paid to an external fund manager).’
ASIC goes on to say: ‘we expect that fees charged to members will include:
- fees that are deducted directly from the member’s account (eg an administration fee in the form of a flat weekly fee)
- fees, such as an investment fee, that are charged by the trustee through a reduction in a unit price (eg a percentage-based fee).’
This suggests that ASIC is comfortable with a fee that is charged indirectly (ie, by a reduction in a unit price), rather than directly to a member’s account, being disclosed as an ‘investment fee’. A number of trustees have been reluctant to take this approach on the basis that the law does not allow for amounts that are deducted from unit prices to be disclosed as an ‘investment fee’ or ‘administration fee’ because, technically, they are not related to costs incurred by the trustee as per the definitions of those fees in section 29V of the SIS Act.
- taxation: The fees and costs disclosed must include, if applicable, GST (less any reduced input tax credits) and stamp duty. A trustee must also disclose fees gross of income tax. The fee the trustee discloses must not be reduced by any income tax deduction the trustee may be able to claim against costs. The example that ASIC uses is: ‘If the gross fee is $100 (ignoring GST for illustrative purposes only), the amount the trustee must disclose is $100, rather than $85 (assuming the fund’s income tax of 15%). Any benefit of an income tax deduction relating to a fee should be received by the member through the deduction of a lower fee than is disclosed, or as lower tax on contributions or income.’
- performance fees: The definitions of ‘performance’ and ‘performance fee’ have changed to take into account the different types of products on offer (eg a managed investment product, a superannuation product, a MySuper product or an investment option). The new definition of ‘investment fee’ for superannuation products now incorporates performance fees, and the regulations require trustees to provide a statement about how performance fees affect administration fees and investment fees for a superannuation product. Under previous legislation, trustees were required to make a statement that performance fees were included in the template as ‘management costs’. The method of calculating the fee and the amount of the fee – or an estimated amount if the amount is unknown – has not changed.
ASIC recognises that there is inconsistency and a lack of clarity in the industry about how future performance fees should be determined and disclosed. One common practice is for funds to show the previous year’s performance fees as a reflection of what it expects will occur in the current year. ASIC’s view is that this practice may be misleading because it implies that past performance fees may be repeated. ASIC states: ‘we maintain the guidance currently provided in RG 97.79, which requires that the assessment of future performance fees is based on reasonable assumptions consistent with Regulatory Guide 170 Prospective financial information (RG 170). Our expectation is that trustees will not simply reflect past performance fees for future years, but will make assumption-based estimates of future performance fees, which allow for meaningful comparison between superannuation funds’.
advice fees: The fees and costs template for superannuation products requires the inclusion of ‘advice fees’ relating to all members investing in a particular MySuper product or investment option. In effect, the ‘advice fees’ that need to be disclosed in the fees and costs table are ‘intra-fund’ advice fees. However, such fees are sometimes built into the administration fee the trustee charges. If the fee has the characteristics of an ‘advice fee’ in the SIS Act, but is charged as an administration fee, it will not be an advice fee and will need to be disclosed as an administration fee in the template. However, if the intra-fund advice fee has the characteristics of an ‘advice fee’ in the SIS Act and is not otherwise charged as a fee under section 29V, it should be disclosed as an ‘advice fee’ in the template.
Deferral of section 29QC3
ASIC has deferred by class order [CO 14/541] the operation of section 29QC of the SIS Act until 1 July 2015 so it can consult further with industry on the application of this section. Section 29QC states a superannuation fund trustee must use the same calculation when providing information to a person or on a website as it does when giving the same or equivalent information to APRA under a reporting standard.
ASIC reiterates that APRA’s Reporting Standard SRS 700.0 Product Dashboard (MySuper) continues to apply regardless of this deferral of section 29QC, so trustees will need to refer to this reporting standard for the elements of the product dashboard, including the return target information in the dashboard.
Further, reporting of fee and cost information will still be required under APRA’s Reporting Standard SRS 703.0 Fees Disclosed regardless of the deferral of section 29QC.