- Finds current disclosure rules complex and inconsistent
- Makes sensible reform suggestions
- Indirectly makes case for this type of review in other areas of consumer financial services rules
Last week ASIC released a review into “Disclosing fees and costs in PDSs and periodic statements”, written by Darren McShane.
ASIC officially calls this document REP 581.
In truth the topic is not the most exciting and the report is hardly a page turner. But McShane leaves no stone unturned in a long report and appears to be even handed between the various vested interests in the superannuation sector.
The key take-out from the document is that despite decades of reform in the superannuation and financial services sector about product disclosure there is still work that needs to be done to improve how fees and expenses are exposed to prospective and actual clients.
There is an obvious question here – why has this poor outcome been allowed to develop over such a long period and why has it been allowed to persist?
Part of the problem is that there is a difference between fees, costs and expenses although a consumer probably doesn’t care about these distinctions. And accountants and lawyers have their own respective treatments which is different to these theoretical definitions. Yes, the problem is more complex than it might appear.
The rest of the answer to this question is quite complex.
Firstly, legislation governing our financial lives is a convoluted multi-layered “dog’s breakfast” as we all know. Somehow investors have to navigate taxes, super, social security and aged care laws as well as State based rules and obligations.
Many years ago laws were changed in silos and consequential impacts were often deliberately ignored unless appropriate and sufficient pressure was applied to smooth some of the more egregious related problems. This piecemeal approach does not occur as often as it did in the past but it still clearly happens.
It is also the case that bureaucrats, advisers and politicians often receive feedback that is self-serving and it must be very tricky finding a way through the maze of competing interests. Deciphering good and bad views in this environment must be difficult. We can also add to this mix what appears to be insufficient experience or knowledge to fully appreciate the practical application of various issues (admittedly sometimes made more intricate than they need to be). And without stating the obvious sometimes in a political environment you can’t achieve the ideal outcome.
McShane is alive to the ability of governments and regulators to cherry-pick expert recommendations:
Some in the industry will not agree with the overall approach and many will disagree with individual proposals based on their own circumstances. As the recommendations are structured as a package that provides some relaxation of requirements whilst delivering better overall outcomes for consumers, I would encourage ASIC not to allow cherry picking of individual recommendations, particularly those relating to the fee disclosure data. (my emphasis)
Financial Product Comparisons Are Difficult
ASIC Report 581 says that making comparative decisions on financial products is complex and difficult (personally I think it’s next to impossible). Ideally the only way this comparison can be done is for consumers to be able to:
- Access information readily when they need it
- Understanding and comparing that information on a like for like basis
- Consider the relative importance of this information
- Factor in the relativities of other issues such as risk and return expectations
Currently no publicly available source of truth of product costs and fees
As McShane points out consumers can only access some information by collating and comparing fees and costs from each product’s Product Disclosure Statements. To solve this he recommends that ASIC undertakes to investigate the most cost effective way of providing this information for free in a central source.
This recommendation should make us all hang our heads in shame - after 25 years of compulsory super that has generated a $2.6 trillion sector when we want people to take more control of their retirement finances an external expert has to point out the bleeding obvious.
More modifications for fee templates
The is a strong recommendation for a number changes to the layout of the standard fee templates and the components of them however it is suggested that these changes before being implemented should be consumer tested.
Overall this review is a good example of how a complex area of the law can be simplified to benefit the ultimate consumer. Perhaps other areas of the law should be similarly reviewed – some possible examples - the super preservation rules, the income stream standards, the rules allowing a personal super tax deduction and excess contribution assessment processes.
Report 581 - Review of ASIC Regulatory guide 97 disclosing fees and costs in pdss and periodic statementsRead report