Funds hiding true fee costs in PDSs
Despite still complying with requirements from the Australian Securities and Investments Commission (ASIC) to fully disclose fees to prospective buyers, it is very rare for funds to be entirely open about their fee structures on their websites.
Research by Money Management found that while ASIC’s RG97, introduced in March last year, requires funds to fully disclose their fee setups in the product disclosure statements (PDSs), many did not make that information fully accessible in their general websites and factsheets for their funds.
The introduction of the Mifid II trading rules in the European Union this month saw a spate of major fund managers criticised, as the changed requirements on the provision of cost figures revealed that many funds had failed to provide accurate representations of the total cost of investing in funds.
The Financial Times in the United Kingdom found that some popular funds, including ones run by Janus Henderson, BlackRock and Vanguard, cost up to four times as much to invest in as previously thought.
Money Management found that many Australian funds had a similar tendency to hide their fee structures.
A consistent trend was the lack of disclosure of performance fees; for strong funds, this could be a significant cost to investors that they would not predict had they not studied the PDS (as, unfortunately, many do not).
A study of Magellan’s funds showed that, while management and administration fees were on their site, interested investors would need to dive into the PDSs to get a true idea of what buying into the fund costs. Both its Global Trust and Infrastructure funds, for instance, imposes performance fees and transaction and operational costs, the details of which are not on the general site for each fund.
Some funds, such as the Arnhem Concentrated Australian Equity fund, had no mention of any fees either on its site or that of its distributor, BNP Paribas. Grant Samuel Tribeca Alpha Plus’ fund imposes management fees of 0.97 per cent of the fund’s NAV and a performance fee of 20.5 per cent on investment return above the benchmark, yet mentions neither on their site.
Antares was a notable exception to this trend; despite imposing relatively high performance fees, they were entirely open about the fact on their sites. Their Elite Opportunities Professional, Elite Opportunities Shares Personal and High Growth shares funds all have performance fees of 20 per cent above their performance hurdles, and all were completely upfront about that fact on their sites as well as PDSs.
ASIC had previously said that its enactment of RG97 was in response to its concerns with inconsistency and under-reporting of fees by superannuation and managed funds. While the regulation could have improved this in regard to PDSs, Money Management’s research showed that consumers still need greater transparency on funds’ websites.
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