Why is disclosure still a hot issue?
In themiddle of last week, the Australian Securities and Investments Commission (ASIC) released a report which was a review of the disclosure of fees and charges within managed investments.
The report joins similar works that have come out this year, but this paper is important because the title also contained the phrase ‘…and options for reform’.
What this says is that ASIC has taken a look at disclosure of fees and charges, has released this paper for comment and after a period of time, will pass its own judgement on the situation.
This raises a statement and a question. Firstly, not all parts of the financial services industry will be pleased with the comments, and secondly, why not?
To deal with the statement requires a brief rundown of only some of the major changes recommended in the paper.
ASIC says there needs to be standard definitions of charges and why they are being applied. It also says they need to be broken down by the separate areas of administration and investment fees, as well as the fees which are covered in those areas, such as entry and exit fees.
The regulator also wants charges expressed across all products in dollar amounts, with all fees to be expressed in dollar and percentage terms.
Moving the focus to advisers, ASIC is also interested in any forms of upfront and ongoing fees, and where they are sourced from, and the ubiquitous issue of soft dollar commissions.
From these it is obvious why some parts of the industry will be unhappy. What ASIC proposes is taking the lid off a part of the industry which many people choose not to discuss.
But now the question — why not be happy with such moves?
The main argument in support of the lack of disclosure is that many fees or commissions have no material affect on the client’s choice of investment product. If that is really the case then they should be openly disclosed to remove any possible impression they may have an affect.
Disclosure should be something both the funds management and planning industries are freely offering and not the result of a working paper or policy statement from the Government regulator.
This is something that is not only consistent with the behaviour of a profession, it makes good business sense, builds better client relationships and has always been the right thing to do.
AUTHOR
Jason Spits
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