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

Three steps to planning your spending in retirement

What happens when a superannuation expert sets up his own retirement portfolio using decades of knowledge? He finds he can afford much more investment risk in his portfolio than conventional thinking suggests.

Five stock recoveries not hanging on COVID predictions

The focus on predicting the recovery from the pandemic is the wrong emphasis. Better to identify great companies benefitting from market changes over a three- to five-year horizon with or without COVID.

Peak to peak, which LIC managers performed during COVID?

A comprehensive review of dozens of LICs shows how they performed in the crucial 'peak to peak' of COVID. This 14 months tested the mettle and strategies of a sector often under fire, with many strong results.

Finding sustainable dividend stocks on the ASX

There is a small universe of companies on the ASX which are reliable dividend payers over five years, are fairly valued and are classified as ‘negligible’ or ‘low’ on both ESG risk and carbon risk.

Blink and you missed a seismic shift in these stocks

Blink and it happened. If announcements in this sector were made by a producer of iron ore, gas, copper or some new tech, the news would have been splashed across the front pages. Have we witnessed a major change?

How inflation impacts different types of investments

A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.

Latest Updates


Platinum’s four guiding investment principles

Buying mispriced stocks is often uncomfortable when companies are outside the spotlight and markets are driven by emotions. And it's inescapable that the price paid ultimately determines the end result.


Andrew Lockhart on corporate loans as an income alternative

Loans to corporates were the traditional domain of banks, but as investors look for income alternatives to term deposits, funds have combined hundreds of loans into a single structure to create a diversified investment.


10 things I learned in my faux-retirement

Pre-retirees should ‘trial run’ their retirements. All those things you want to do - play golf, time with the family, a hobby, write a book - might not be so appealing in reality, but you might discover other benefits.


Achieving a sufficient retirement income portfolio

Retirees require a reliable income stream to replace the wages they received when they were working and should focus on the dollar income generated over time rather than the headline yield percentage.

'Wealth of Experience' podcast and ASA webinar on ETFs v LICs

Peter reveals some top stock picks with an emphasis on long-term assets like Sydney Airport, Graham discusses spending in retirement and valuing assets, the key to Amazon, guest Andrew Lockhart and plenty more.


Lucy Turnbull’s three lessons on leadership and successful careers

From promoting women to boost culture to taking opportunities as they arise, Lucy Turnbull AO says markets should not drive decision-making and leaders must live and breathe the company's mission and values.


Are concerns about inflation inflated?

While REITs and some value stocks are considered 'inflation-sensitive' assets, the data provide little support that they are good inflation hedges, and energy stocks and commodities are too volatile. So what works?



© 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.