Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 176

ASIC creates a level playing field on fees

The countdown is on. From February 2017, managed investments and superannuation products must adhere to ASIC’s new fee disclosure guidelines. The changes create a level playing field across products, leaving little doubt that any fees or costs reducing the ultimate investment return must be disclosed. But for products that have avoided indirect (or ‘look-through’) cost calculations up until now, the changes are far reaching and require considerable thought and preparation. ASIC has indicated that the deadline will not be extended.

ASIC has tried to even things up such that consumers can make meaningful and consistent comparisons between products.

The amended Regulatory Guide 97—Disclosing fees and costs in PDSs and periodic statements (RG 97) was released in November 2015 and ASIC consider 18 months is ample time for product providers to ready themselves for the changes. The changes are extensive. The regulatory guide has increased by 45 pages with the main change relating to indirect costs.

Clarifying disclosure of indirect costs

Previously, the disclosure of indirect costs was open to interpretation, but this guide makes it crystal clear that product providers should look-through all the way to the actual investment providing the return and count any amount which will directly or indirectly reduce this investment return. This means, for example, with an investment in a hedge fund or private equity ‘fund of funds’ with multiple underlying vehicles - which ASIC has termed ‘interposed vehicles’ – the product provider needs to count all the fees and costs of those underlying structures.

ASIC has also applied this concept of interposed vehicles to over-the-counter (OTC) derivatives. That is, if there are any fees and costs embedded in an OTC that are intended to remunerate the counterparty for managing or creating the derivative, these too should count towards total indirect costs. An example might be a swap specifically designed by an investment bank to replicate the return of a standard commodity index. This product needs to be tailored by the investment bank and they seldom do anything for free. There is normally a cost embedded in the swap, but not typically called a ‘fee’, that goes to the investment bank for their work. A fund that purchases this swap will need to firstly be able to calculate this embedded cost, and then ensure that it is captured and disclosed to comply with ASIC’s new rules.

What are ‘income-sharing' arrangements?

Another interesting inclusion is the section dedicated to ‘Reducing costs through income-sharing arrangements’. RG97 specifies that any income or benefit derived from the fund’s assets that is retained by the product provider should be recorded as a fee or indirect cost. This captures circumstances where a service provider’s fee is reduced because they are earning revenue from the use of the assets of the fund. The classic example is a favourable custody fee whereby the custodian reduces its headline fee as it’s using the assets of the fund to generate revenue through a securities lending programme. This illusory ‘discount’ will need to be included in the indirect costs under the new arrangements.

Stretching across 68 pages, there are several other changes for product providers to consider and it will be interesting to see the change in fee levels disclosed from early next year. There’s no doubt there’ll be some innovative interpretations of the new legislation from product providers. But ASIC has tried to even things up such that consumers can make meaningful and consistent comparisons between products.


Annika Bradley is a financial services consultant who is passionate about financial literacy and adequate retirement incomes for Australians. The information in this article should not be considered financial advice. Readers should consider their own personal circumstances and seek professional advice before making any financial decisions.



New RG97 rules will increase disclosed fees

Authorities reveal disquiet over LIC fees


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates


$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.


Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.