Superannuation fee disclosure regime needs an overhaul

Under the current regime, platforms – typically owned by banks and wealth management groups – are not required to disclose all costs relating to underlying investment products.

 

As a result, consumers may be misled into believing such products are less expensive than those with direct investments, when in fact they are likely to be more costly.

 

Industry Super Australia (ISA) has welcomed attempts to improve superannuation fee disclosure, but warns proposals announced by the financial watchdog will fail to address ongoing issues.

 

Throughout several years of consultations, ISA has consistently called for super disclosure to centre on a clear and effective measure of net returns.

 

Taking both fees and investment performance into account, this measure would allow consumers to more easily compare the appropriateness of different products, such as superannuation funds, platforms, and other managed investment schemes.

 

But proposals released on 8 January 2019 by the Australian Securities and Investments Commission (ASIC) will only serve to further complicate, rather than simplify, the current disclosure regime. Crucially, they fail to recommend an end to the platforms exemption.

 

Efforts to address the relevant consumer comparability concerns are similarly disappointing.

 

Under the proposals, platform providers would be required to include a ‘prominent statement’ in fees and costs templates, advising that disclosed fees simply relate to “gaining access” to the underlying products, and do not factor in the actual ongoing costs of those products.

 

In calling for a broader, much-needed overhaul of disclosure, ISA director of research and campaigns, Nick Coates, questioned the value of this requirement.

 

“The concept of including a ‘prominent statement’ is, to be blunt, a cop-out,” said Coates.

 

“It’s essentially just a warning to members that what you see is not what you get when it comes to platform fees.”

 

“This simply continues to place consumers at risk, rendering it almost impossible to make meaningful comparisons between products.”

 

With the banking royal commission yet to hand down its final report, ISA also questioned the timing of the consultation.

 

ASIC should wait for the royal commission’s findings, which may include recommendations relating to disclosure, before commencing a through revision of the regime. It is important that such a review includes consumer testing, to gauge what works best in assisting people to choose the best performing funds with the lowest fees.

 

“It’s clear that a complete rethink is needed when it comes to disclosure, to ensure a net returns measure is placed front and centre,” said Coates.

 

“Papering over the cracks isn’t good enough, especially when the proposed fix is so flawed.”

 

Consultations by ASIC close on 2 April 2019.

 

See also the Productivity Commission 2018, Superannuation: Assessing Efficiency and Competitiveness, Report no. 91.

 

11 January 2019.