ASIC points to super ‘fee gaming’
An Australian Securities and Investments Commission (ASIC) report on fee and cost disclosure within superannuation and managed investment products has acknowledged it is possible to under-disclose fees or costs sufficiently for a fund to appear cheaper or better value than its competitors, while still producing an investment return that continues to appear competitive and reasonable.
The report seems likely to spark further discussion within the superannuation fund sector about the basis for cost comparisons between various types of funds, particularly industry and retail funds.
The ASIC report states that the regulator understands "that there is a perception among some industry commentators that there is inconsistency in fee and cost disclosure and deliberate fee gaming".
"However, it should be noted that variances in fee and cost disclosures can be the result of differing (but legitimate) interpretations of the requirements, rather than deliberate under-reporting of fees," it said.
The report noted that any undisclosed fee or cost would still reduce the investment return reported
to investors and this was because a reduction in disclosed fees and costs was essentially absorbed, in most instances, by investment returns.
"This may act as a disincentive for funds to disclose fees and costs correctly," it said. "However, it is possible to under-disclose fees or costs sufficiently for a fund to appear cheaper or better value than its competitors, while still producing an investment return that continues to appear competitive and reasonable to investors."
The report cited the example of a fund reducing its disclosed fees by 50—100 basis points for a ‘balanced' investment option, which may be sufficient to make its fees appear cheaper than its competitors, while still maintaining its net returns within the competitive range of returns for similar options.
"This problem is further exacerbated by the fact that similarly labelled options—such as ‘balanced', ‘growth' and ‘diversified'—do not always have comparable asset allocations and investment strategies, making it more difficult for investors to properly compare investment options," it said.
The ASIC report pointed to industry support for the development of a standards regime and the issue of prescriptive standards.
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