ASIC “clarifies” fees and costs

In late November, ASIC issued ASIC Corporations (Amendment and Repeal) Instrument 2015/876 (Instrument).

This is ASIC’s latest attempt to clarify the fees and costs disclosure requirements under the Corporations Act 2001 (Act) for product disclosure statements and periodic statements issued by superannuation trustees (fee disclosure requirements), so that more accurate and consistent information about fees and costs is produced in the superannuation industry.

There is much that can be said about this Instrument.

Over the coming months we will provide some of our thoughts on particular aspects of the Instrument via separate blogs.

Let’s start with one of the more ‘straightforward’ aspects of the Instrument.  When must the the Instrument be complied with?

The Instrument revises the changes made to the fee disclosure requirements by ASIC Class Order [CO 14/1252], issued in December 2014, and also contains some additional (and unexpected) changes to the regulations and the Act.

Although the Instrument has effect on the day after it is registered (it was registered 24 November 2015), it contains some transitional provisions in relation to product disclosure statements and member statements (including exit statements) which have the following results:

  • The Instrument inserts a new definition of ‘investment option’ in section 1011B of the Act.  Section 1011B sets out definitions that are relevant to the product disclosure requirements under Part 7.9 of the Act and clarifies that references to an ‘investment option’ in the Act or regulations includes the fund itself, where the fund does not provide a choice of investment options.  This new definition applies from 25 November 2015.
  • The Instrument excludes defined benefit pensions from the fee disclosure regulations.  This exclusion applies from 25 November 2015, however it is not a new exclusion.  It merely replicates the effect of ASIC [CO 07/337] which has expired.
  • The Instrument’s changes to the fee disclosure requirements for product disclosure statements must be complied with from 1 February 2017, at the latest (the PDS transition end date).  This date applies regardless of when a product disclosure statement was given.  This means, for example, that a product disclosure statement issued in the third quarter of 2016 to include updated information about fees and costs, based on a fund’s financial experience during the 2015/2016 financial year, must be re-issued by the end of January 2017 to comply with the Instrument, if the Instrument has not been adhered to earlier.
  • A superannuation trustee can comply with the whole of the Instrument (as it relates to product disclosure statements) from an earlier date by stating, in the product disclosure statement or on the trustee website from where the product disclosure statement can be accessed, that the Instrument applies to the product disclosure statement, that is by providing an ‘opt in’ notice. This is a more flexible approach to the opt in notice required under ASIC Class Order [CO 14/1252] (under [CO 14/1252] the opt in notice was required in the product disclosure statement itself).
  • A superannuation trustee can comply with some parts of the Instrument relating to product disclosure statements without giving an opt in notice, including:
    • a change to the  requirement to calculate the ICR for fee disclosures in a product disclosure statement on the basis of the ICR for the previous financial year.  If a superannuation product or investment option was not offered from at least 11 months before the end of the previous financial year, the ICR for the product disclosure statement is to be determined based on the trustee’s ‘reasonable estimate at the time the statement is prepared of the ICR that will apply for the current financial year and if the product or investment option was first offered in the current financial year, since the time the product or investment option was first offered, adjusted to reflect a 12 month period.’
    • a change to the note that must appear under the example of annual fees and costs, as follows:  ‘Note. * Additional fees may apply.  And, if you leave the superannuation entity, you may be charged an exit fee of $x  and a buy/sell spread which also applies whenever you make a contribution, exit, rollover or investment switch.  The buy/sell spread for exiting is y% (this will equal to $z for every $50,000 your withdraw).’  This is intended to highlight the impact of buy/sell costs.
    • a change to the second last sentence under ‘DID YOU KNOW’ in the Consumer Advisory Warning to ‘You or your employer, as applicable, may be able to negotiate to pay lower fees.’  This corrects an error in [CO 14/1252].
  • The Instrument’s changes to the fee disclosure requirements for member statements must be complied with in any member statement that must be given to members by 1 January 2018 or a later date (the Member Statement transition end date).
  • A  superannuation trustee can comply with the whole of the Instrument (as it relates to member statements) from an earlier date provided the statement contains an opt in notice.  The opt in notice in relation to member statements cannot be published on the website. Although there is no express requirement that a member statement for a superannuation product must adhere to the Instrument if an opt in notice has previously been issued in respect of the product’s product disclosure statement, for other reasons (including avoiding misleading or deceptive conduct) we think that a member statement should reflect the requirements of the Instrument if the member statement relates to a product disclosure statement that has opted into the Instrument’s product disclosure requirements.

For funds that did comply with CO 14/1252 before 25 November 2015, by issuing an opt in notice in their PDS and/or periodic statements, CO 14/1252 can continue to be complied with up until the transition end dates specified above for product disclosure statements and member statements.  It is our understanding that CO 14/1252 was not adopted early by many funds.  This reflects that most funds, faced with the complexities and uncertainties of CO 14/1252, preferred to wait for any regulatory and industry developments (in particular, ASIC’s revised Regulatory Guide 97).

Finally, amongst the Instrument’s additional and unexpected changes is a change relating to the significant event reporting obligation in section 1017B of the Act.  These changes apply from 25 November 2015.  These changes relax the significant event reporting obligation.  Our next blog will explore these changes in more detail.

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