ASIC RG 97 — ASIC Regulatory Guide – RG 97 Disclosing fees and costs in PDSs and periodic statements

Page 1 REGULATORY GUIDE 97 Disclosing fees and costs in PDSs and periodic statements September 2020 About this guide This guide is for:  issuers of certain superannuation products;  issuers of managed investment products and operators of notified foreign passport funds; and  platform operators that operate superannuation platforms, investor directed portfolio services (IDPSs) and IDPS-like schemes. It explains how fees and costs should be disclosed in Product Disclosure Statements (PDSs), shorter PDSs (if the shorter PDS regime applies), IDPS Guides and periodic statements. Page 2 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 2 About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by:  explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act)  explaining how ASIC interprets the law  describing the principles underlying ASIC’s approach  giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project. Document history This guide was issued in September 2020 and is based on legislation and regulations as at the date of issue. In September 2020, we inserted RG 97.67. This new paragraph clarifies that when the total amount of administration fees and costs for a superannuation product includes an amount that does not change with the balance, you must disclose that amount separately. Previous versions:  Superseded Regulatory Guide 97, issued November 2011, reissued November 2015, February 2017, March 2017 (transitional version of RG 97), November 2019 and July 2020  Superseded Enhanced fee disclosure regulations: Questions and answers—An ASIC guide, issued March 2006, updated June 2006 and May 2007, rebadged as Regulatory Guide 97 Enhanced fee disclosure regulations: Questions and answers on 5 July 2007 Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Examples in this guide are purely for illustration; they are not exhaustive and are not intended to impose or imply particular rules or requirements. Page 3 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 3 Contents A Overview .................................................................................................5 Purpose of this guide ...............................................................................5 Who this guide applies to.........................................................................8 Commencement date and transitional arrangements ...........................11 Our monitoring of compliance ................................................................13 B Superannuation products: PDSs .......................................................14 Fees and costs disclosure requirements for full PDSs ..........................14 Fees and costs disclosure requirements for shorter PDSs ...................25 Costs met from reserves ........................................................................27 Calculating costs for superannuation products......................................28 Disclosure of fees and costs for insurance ............................................29 C Superannuation products: Periodic statements ..............................31 Requirement to provide periodic statements .........................................31 Fees and costs disclosure requirements for periodic statements .........32 Periodic statements for defined benefit members .................................36 D Managed investment products and notified foreign passport fund products: PDSs ...........................................................................37 Fees and costs disclosure requirements for full PDSs ..........................37 Fees and costs disclosure requirements for shorter PDSs ...................48 Calculating costs in management fees and costs .................................51 E Managed investment products and notified foreign passport fund products: Periodic statements ............................................................53 Requirement to provide periodic statements .........................................53 Fees and costs disclosure requirements for periodic statements .........53 F Platforms: Additional fees and costs disclosure requirements .....58 Disclosure of cost impact for accessible financial products ..................58 Additional disclosure in platform PDSs and IDPS Guides .....................59 Additional disclosure in platform periodic statements ...........................60 Other disclosure requirements...............................................................62 Comparisons must not be misleading ...................................................62 G Common fees and costs concepts ....................................................63 Purchase price of an investment ...........................................................63 Fees and costs paid by third parties ......................................................64 Fees and costs offset by other income ..................................................64 Income-sharing arrangements ...............................................................64 Indirect costs ..........................................................................................65 Costs associated with derivative financial products ..............................66 Meaning of ‘interposed vehicle’ .............................................................70 Transaction costs ...................................................................................79 Performance fees ..................................................................................81 H Calculating and presenting fees and costs ......................................83 Collecting and compiling data for fees and costs disclosures ...............83 Filling in the ‘Fees and costs summary’ .................................................83 Disclosing fees and costs for multiple investment options ....................85 Calculating and disclosing transaction costs .........................................86 Calculating and disclosing performance fees ........................................87 Making reasonable estimates ................................................................90 Impact of tax on fees and costs disclosure in PDSs .............................92 Page 4 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 4 I Updating fees and costs information ................................................94 Updating fees and costs information in PDSs .......................................94 Requirements for significant event notices ............................................96 Appendix: Interposed vehicles—Examples ..............................................99 Key terms ...................................................................................................103 Related information ...................................................................................110 Page 5 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 5 A Overview Key points This guide explains how fees and costs should be disclosed in Product Disclosure Statements (PDSs), shorter PDSs (if the shorter PDS regime applies), investor directed portfolio services (IDPS) Guides, and periodic statements. It is for: • issuers of certain superannuation products; • issuers of managed investment products and operators of notified foreign passport funds; and • platform operators that operate superannuation platforms, IDPSs and IDPS-like schemes. The purpose of fees and costs disclosure is to ensure that consumers have accurate information to help their decision making. ASIC monitors compliance and has powers to stop or seek enforcement outcomes for misleading disclosure or disclosure that does not meet legal requirements. Note 1: Some terms used in this guide (e.g. PDS, periodic statement and indirect cost) have specific meanings—see the ‘Key terms’ at the end of this guide. Note 2: In this guide, references to sections, Pts, Divs and Chs are to the Corporations Act 2001 (Corporations Act) and references to cls, regs and Schs are to the Corporations Regulations 2001 (Corporations Regulations), unless otherwise indicated. Purpose of this guide RG 97.1 Generally, every consumer who acquires a superannuation product, a managed investment product or a notified foreign passport fund product must receive: (a) a PDS when acquiring the product; and (b) a yearly periodic statement about the product. RG 97.2 The purpose of fees and costs disclosure is to ensure that consumers have accurate information to help their decision making. A consistent and transparent approach to fees and costs disclosure has benefits—for consumers, issuers and market professionals: see Table 1. Note: The fees and costs disclosure requirements discussed in this guide are set out in the Corporations Act and in the Corporations Regulations, including Schs 10, 10D and 10E to the Corporations Regulations. We have amended these requirements in ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070. RG 97.3 The purpose of this guide is to: (a) promote greater transparency through consistent adherence to the fees and costs disclosure requirements; and Page 6 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 6 (b) help issuers of certain superannuation products and managed investment products, and operators of notified foreign passport funds (you), understand how to disclose fees and costs in PDSs and periodic statements. RG 97.4 A consistent and transparent approach to fees and costs disclosure can contribute to better financial markets. Transparent disclosure of all fees, underlying costs and conflicts of interest reflects a culture of good governance and conduct. RG 97.5 Financial advisers, other market professionals and the media can also use the information you publicly disclose to the market to: (a) advise consumers; and (b) analyse and benchmark the market, enhancing competition. RG 97.6 Disclosure may also be useful for some consumers in some contexts. For example, consumers can use disclosure of fees and costs post-purchase for reference in the event of a dispute. Disclosure alone is, however, not sufficient to drive good consumer outcomes. We encourage you to consider the outcomes for consumers who invest in the products you offer and design both the fees and costs themselves, and the information you provide about those fees and costs, to support good outcomes. For example, this could involve simplifying fees and costs to minimise consumer confusion. Table 1: Benefits of consistent and transparent disclosure in PDSs and periodic statements Who benefits? What are the benefits? Consumers Fees and costs disclosure makes important information available to consumers. It may help them to:  compare products; and  understand the fees and costs they are charged. Fees and costs are particularly important for investments that a consumer will hold for a long time (such as superannuation). This is because the effect of fees and costs on an investment can be substantial and can compound over time. Issuers Fees and costs disclosure helps keep issuers accountable and transparent. When you deduct fees and costs from an account or investment, you are dealing with members’ money. Transparent disclosure of all fees, underlying costs and conflicts of interest reflects a culture of good governance and conduct. Market professionals Financial advisers and other professionals can use the information you publicly disclose to the market to:  advise consumers; and  analyse and benchmark the market. Page 7 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 7 RG 97.7 Although it is important that consumers consider fees and costs when making an investment decision, they should also consider other factors. For example, it is important that they consider the risks of a particular investment, the types of assets the product holds, and the likely returns. Disclosures about these other factors are not addressed in this guide. In relation to superannuation products, fees and costs disclosures also operate alongside the legislative frameworks established by the Government under which consumers are presented with, and may choose, superannuation products, and which will also influence consumer decision making. RG 97.8 This guide complements our general guidance on PDSs in Regulatory Guide 168 Product Disclosure Statements (and other disclosure obligations) (RG 168) and other guidance on PDS requirements for specific types of products. The legislative framework RG 97.9 This guide only concerns the fees and costs disclosure requirements of the Corporations Act and Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070. It does not discuss other relevant disclosures for consumers. For the requirements before the commencement of ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070, see: (a) Class Order [CO 14/1252] Technical modifications to Schedule 10 of the Corporations Regulations; and (b) the transitional version of RG 97 (released March 2017), which can be downloaded from the RG 97 landing page on ASIC’s website. RG 97.10 The legislative framework for fees and costs disclosure is prescriptive in a number of respects and we have exercised our modification powers to clarify the legislative framework. Within the scope of our powers and the core elements of the legislative framework, we have sought to strike a balance between: (a) ensuring that consumers and market professionals have useful information; and (b) you being able to practically comply with the fees and costs disclosure requirements. RG 97.11 We encourage you to carefully consider what types of consumers invest in the products you offer and how you can best disclose fees and costs (within the limits of the fees and costs disclosure requirements), and to provide other fees and costs information and tools in a way that will best meet the needs of those consumers. This will help consumers make informed decisions. Page 8 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 8 RG 97.12 This guide seeks to provide clear information on how to comply with your obligations. However, responsibility for compliance rests with you. This guide cannot provide a decision-making tool for every decision you may need to make about disclosing fees and costs that relate to your particular products. When making such decisions, we expect you to consider the purposes of disclosing fees and costs, including, when relevant, good market practices. Who this guide applies to RG 97.13 The fees and costs disclosure requirements explained in this guide apply to: (a) superannuation trustees—for PDSs and periodic statements (see Sections B and C); Note: The fees and costs disclosure requirements do not apply to: self-managed superannuation funds (SMSFs); ‘no investment’ component (‘risk-only’) superannuation products; annuities (except market-linked annuities, including both investment-linked annuities and investment account annuities); pensions provided under regs 1.06(2), 1.06(6) or 1.06(7) of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations); and non-investment or accumulation life insurance policies offered through superannuation. (b) responsible entities and notified foreign passport fund operators—for PDSs and periodic statements (see Sections D and E); and (c) platform operators: (i) superannuation platforms and IDPS-like schemes—for PDSs and periodic statements; and (ii) IDPSs—for IDPS Guides (see Sections B, C and F). RG 97.14 As a matter of good practice, we encourage issuers of investment life insurance products to apply the fees and costs disclosure requirements explained in this guide. These issuers should make any necessary adaptions to suit the nature of their products. Note: Issuers of investment life insurance products are not required to comply with the enhanced fees and costs disclosure requirements set out in Div 4C of Pt 7.9 and Sch 10 to the Corporations Regulations. ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 does not alter this position. RG 97.15 To help you comply with the fees and costs disclosure requirements, this guide also: (a) explains common concepts used in fees and costs disclosure (see Section G); (b) gives guidance on how to calculate and present fees and costs information (see Section H); and (c) explains how to ensure that your fees and costs information remains up to date (see Section I). Page 9 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 9 RG 97.16 Superannuation entities and managed investment schemes often invest in underlying entities to gain exposure to certain investments and assets. Under the fees and costs disclosure requirements, you must disclose the fees and costs of investing in an underlying entity when it is an ‘interposed vehicle’. The tests for an ‘interposed vehicle’ are explained in Section G, and the appendix to this guide provides examples of interposed vehicles. RG 97.17 Table 2 lists the relevant legislation for each type of entity and the location in this guide of the discussion of the legal requirements. Table 2: Relevant legislation for fees and costs disclosure and location of guidance Disclosure document Location of the legal requirements Further discussion in this guide Superannuation products Full PDS Part 7.9 of the Corporations Act, Subdiv 4C.2 of Pt 7.9 of the Corporations Regulations, and Sch 10 to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 See Section B at RG 97.31–RG 97.86 Shorter PDS Part 7.9 of the Corporations Act, Subdiv 4.2B of Pt 7.9 of the Corporations Regulations, and Sch 10D to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 See Section B at RG 97.87–RG 97.101 Periodic statement Part 7.9 of the Corporations Act, Pt 7.9 of the Corporations Regulations, and Pt 3 of Sch 10 to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 (other regulations may also apply) See Section C at RG 97.113–RG 97.145 Managed investment products and notified foreign passport fund products Full PDS Part 7.9 of the Corporations Act, Subdiv 4C.2 of Pt 7.9 of the Corporations Regulations, and Sch 10 to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 See Section D at RG 97.146–RG 97.202 Shorter PDS Part 7.9 of the Corporations Act, Subdiv 4.2C of Pt 7.9 of the Corporations Regulations, and Sch 10E to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 See also Class Order [CO 12/749] Relief from the shorter PDS regime, which excludes certain simple managed investment schemes from the shorter PDS regime See Section D at RG 97.203–RG 97.221 Periodic statement Part 7.9 of the Corporations Act, Pt 7.9 of the Corporations Regulations, and Sch 10 to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 (other regulations may also apply) See Section E at RG 97.226–RG 97.252 Page 10 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 10 Disclosure document Location of the legal requirements Further discussion in this guide Platforms: Superannuation platforms Full PDS Part 7.9 of the Corporations Act, Subdiv 4C.2 of Pt 7.9 of the Corporations Regulations, and Sch 10 to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 See Sections B and F at RG 97.32 and RG 97.256–RG 97.264 Shorter PDS (if permitted under [CO 12/749]) Part 7.9 of the Corporations Act, Subdiv 4.2B of Pt 7.9 of the Corporations Regulations, and Sch 10D to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 See Sections B and F at RG 97.32 and RG 97.256 Periodic statement Part 7.9 of the Corporations Act, Pt 7.9 of the Corporations Regulations, and Pt 3 of Sch 10 to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 (other regulations may also apply) See Section F at RG 97.265–RG 97.270 Platforms: IDPS-like schemes Full PDS Part 7.9 of the Corporations Act, Subdiv 4C.2 of Pt 7.9 of the Corporations Regulations, and Sch 10 to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 See Section F at RG 97.256–RG 97.264 Periodic statements Part 7.9 of the Corporations Act, Pt 7.9 of the Corporations Regulations, and Pt 3 of Sch 10 to the Corporations Regulations, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 (other regulations may also apply) See Section F at RG 97.265–RG 97.270 Platforms: IDPSs IDPS Guide An IDPS Guide must provide information about fees and costs in relation to the IDPS that complies with Pt 2 of Sch 10 to the Corporations Regulations as if an interest in the IDPS were a managed investment product: see s912AD, as notionally inserted by Class Order [CO 13/763] Investor directed portfolio services. See Section F at RG 97.271 Managed discretionary account (MDA) providers RG 97.18 When an MDA provider issues a Financial Services Guide (FSG), it must provide information about fees and costs in relation to its MDA services that complies with Pt 2 of Sch 10 to the Corporations Regulations as if the client were being offered a managed investment product: see s912AEA, as notionally inserted by ASIC Corporations (Managed Discretionary Account Services) Instrument 2016/968. Part 2 of Sch 10 as it relates to managed investment products is discussed in Section D of this guide. For further guidance on MDAs, see Regulatory Guide 179 Managed discretionary accounts (RG 179). Page 11 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 11 Commencement date and transitional arrangements RG 97.19 This guide provides guidance and policy on the fees and costs regime as reissued in July and September 2020. This guide describes the regime as it will apply after the relevant transition periods have ended. Under Pt 4 of ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070, the new requirements will apply to: (a) any PDS: (i) dated on or after 30 September 2020, if the issuer has elected to apply the new requirements; and (ii) given on or after 30 September 2022; and (b) any periodic statements (ongoing or on exit) for reporting periods: (i) that commence on or after 1 July 2020 if the issuer has elected to apply the new requirements; and (ii) that commence on or after 1 July 2021 (see Table 3). RG 97.20 When you comply with ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 for the first time, there may be an apparent increase in the amounts of fees and costs from a change in calculation and presentation. If this is the case, you are not required to issue a significant event notice under s1017B(1). This exemption does not apply if there is a material increase in the amounts of fees and costs that does not arise from complying with ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070. RG 97.21 For the requirements that apply before the commencement of ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070, see: (a) [CO 14/1252]; and (b) the transitional version of RG 97 (released March 2017), which can be downloaded from the RG 97 landing page on ASIC’s website. RG 97.22 Although the transitional version of RG 97 will continue to apply during the transition period, industry can obtain immediate benefit from the clearer guidance in this updated version of RG 97 about existing fees and costs disclosure requirements that have not changed. Page 12 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 12 Table 3: When the requirements apply and our related guidance Disclosure document Commencement date and related guidance Election arrangements PDS For PDSs given before 30 September 2022 you must comply with [CO 14/1252]. The transitional version of RG 97 (released March 2017) applies to these PDSs. For PDSs given on or after 30 September 2022, you must comply with ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070. The updated version of RG 97 (released November 2019 and reissued in July and September 2020) applies to these PDSs. You may elect to apply the updated requirements if the PDS is dated on or after 30 September 2020. If you do so, you must comply with ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 for that PDS and subsequent PDSs. The updated version of RG 97 (released November 2019 and reissued in July 2020) applies to these PDSs. Periodic statement For periodic statements (ongoing or on exit) for reporting periods that commence before 1 July 2021, you must comply with [CO 14/1252]. The transitional version of RG 97 (released March 2017) applies to these periodic statements. For periodic statements (ongoing or on exit) for reporting periods that commence on or after 1 July 2021, you must comply with ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070. The updated version of RG 97 (released November 2019 and reissued in July and September 2020) applies to these periodic statements. You may elect to apply the updated requirements if the periodic statement is for a reporting period that:  commences on or after 1 July 2020; or  ends on a day that is on or after 1 July 2020 if the reporting period ends on the exit date because the holder of the product ceased to hold the product on the exit date (see RG 97.25–RG 97.26). Election to apply the new requirements before the deadline 30 September 2022 RG 97.23 An issuer may elect to apply the new requirements in ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 to a PDS dated on or after 30 September 2020. If this is done, then all subsequent PDSs for the financial product must comply with the new requirements. RG 97.24 An issuer who elects to apply the new requirements must make a written record of: (a) the PDS that will comply with the new requirements; and (b) the date or dates the election is made. RG 97.25 An issuer may elect to apply the new requirements in ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 to a periodic statement for a reporting period that: (a) commences on or after 1 July 2020; or Page 13 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 13 (b) ends on a day that is on or after 1 July 2020, if the reporting period ends on the exit date because the holder of the product ceased to hold the product on the exit date. RG 97.26 An issuer that elects to apply the requirements to a periodic statement for an earlier reporting period as set out in RG 97.25 must make a written record of: (a) the financial products to which the election relates; (b) the reporting periods to which the election relates; and (c) the date or dates the election is made. RG 97.27 When an issuer elects to apply the requirements to a periodic statement, they must apply the requirements to periodic statements for subsequent reporting periods for the financial product. Our monitoring of compliance RG 97.28 We aim to ensure that: (a) issuers comply with the disclosure requirements, including the fees and costs disclosure requirements; and (b) consumers are provided with accurate information to help their decision making. RG 97.29 We review PDSs, periodic statements and marketing materials to promote this outcome. RG 97.30 ASIC has powers to stop, or seek enforcement outcomes in relation to, misleading disclosure, disclosure that does not contain all relevant information, or disclosure that does not meet legal requirements (such as making a stop order under s1020E). Page 14 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 14 B Superannuation products: PDSs Key points This section explains the fees and costs disclosure requirements for PDSs for superannuation products. The requirements are different, depending on whether you are using a full PDS or a shorter PDS. The requirements for a shorter PDS are derived directly from the requirements for a full PDS. You will need to prepare the following information for any superannuation product requiring a full PDS: • a ‘Consumer advisory warning’; • a ‘Fees and costs summary’; • an ‘Example of annual fees and costs’; • ‘Cost of product information’; and • ‘Additional explanation of fees and costs’ (see RG 97.31–RG 97.86). A shorter PDS must include: • a ‘Consumer advisory warning’; • a ‘Fees and costs summary’; • an ‘Example of annual fees and costs ‘; and • other fees and costs information (see RG 97.87–RG 97.101). This section also provides guidance on: • the requirement to include amounts paid from reserves in your calculations (see RG 97.102–RG 97.106); • how to calculate costs for superannuation products (see RG 97.107– RG 97.109); and • how to disclose fees and costs for insurance (see RG 97.110– RG 97.112). Note: You should also refer to Sections G and H for further guidance on particular fees and costs concepts, and how to calculate and present fees and costs. In the guidance below, we have included cross-references to relevant parts of those sections. Fees and costs disclosure requirements for full PDSs RG 97.31 Most issuers of superannuation products must prepare shorter PDSs (including for MySuper products). However, there are exceptions and a full PDS is required for a superannuation product that is: (a) an interest that is solely a defined benefit interest; (b) solely a pension product; or (c) a risk-only superannuation product (see reg 7.9.11K). Page 15 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 15 RG 97.32 [CO 12/749] provides that certain other superannuation products (such as superannuation platforms) are also generally excluded from using a shorter PDS. RG 97.33 In preparing a full PDS for a superannuation product, you must include a ‘Fees and other costs’ section comprising: (a) a ‘Consumer advisory warning’; (b) a ‘Fees and costs summary’; (c) an ‘Example of annual fees and costs’; (d) ‘Cost of product information’; and (e) ‘Additional explanation of fees and costs’ (see reg 7.9.16N). RG 97.34 You must also include the consumer-facing definitions for the fees set out in cl 209A of Sch 10. These consumer-facing definitions can either be set out in the ‘Fees and other costs’ section of the full PDS or incorporated by reference. For further information on incorporation by reference, see reg 7.9.15DA. For further information on these fees, see RG 97.39–RG 97.57. ‘Consumer advisory warning’ RG 97.35 You must include a ‘Consumer advisory warning’ at the beginning of the ‘Fees and other costs’ section of a full PDS for a superannuation product: see reg 7.9.16N(2)(c) and cl 222(1) of Sch 10. The content of the ‘Consumer advisory warning’ is set out in cl 221(1) of Sch 10. You must not make any changes or additions to this warning. Figure 1 shows the text of the ‘Consumer advisory warning’. Figure 1: ‘Consumer advisory warning’ for superannuation products DID YOU KNOW? Small differences in both investment performance and fees and costs can have a substantial impact on your long-term returns. For example, total annual fees and costs of 2% of your account balance rather than 1% could reduce your final return by up to 20% over a 30-year period (for example, reduce it from $100,000 to $80,000). You should consider whether features such as superior investment performance or the provision of better member services justify higher fees and costs. You or your employer, as applicable, may be able to negotiate to pay lower fees. Ask the fund or your financial adviser. TO FIND OUT MORE If you would like to find out more, or see the impact of the fees based on your own circumstances, the Australian Securities and Investments Commission (ASIC) Moneysmart website (www.moneysmart.gov.au) has a superannuation calculator to help you check out different fee options. Page 16 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 16 ‘Fees and costs summary’ RG 97.36 You must include a ‘Fees and costs summary’ in a full PDS for superannuation products: see reg 7.9.16N(2)(a). The content is set out in cl 201 of Sch 10. It contains a table separated into ‘Ongoing annual fees and costs’ and ‘Member activity related fees and costs’. RG 97.37 The items show the significant fees and costs members will be charged. Figure 2 shows the ‘Fees and costs summary’ that you must complete for your superannuation product. For information on how to complete the ‘Fees and costs summary’, see RG 97.58–RG 97.59 and RG 97.365–RG 97.374. For more on the line items, see RG 97.39–RG 97.57 and RG 97.365–RG 97.374. Figure 2: ‘Fees and costs summary’ for superannuation products Fees and other costs This section shows fees and other costs that you may be charged. These fees and other costs may be deducted from your money, from the returns on your investment or from the assets of the superannuation entity as a whole. Other fees, such as activity fees, advice fees for personal advice and insurance fees, may also be charged, but these will depend on the nature of the activity, advice or insurance chosen by you. Entry and exit fees cannot be charged. Taxes, insurance fees and other costs relating to insurance are set out in another part of this document. You should read all the information about fees and other costs because it is important to understand their impact on your investment. [If relevant] The fees and other costs for each MySuper product offered by the superannuation entity, and each investment option offered by the entity, are set out on page [insert page number]. Fees and costs summary [Name of superannuation product] Type of fee or cost Amount How and when paid Ongoing annual fees and costs1 Administration fees and costs Investment fees and costs2 Transaction costs Member activity related fees and costs Buy–sell spread Switching fee Other fees and costs3 1. If your account balance for a product offered by the superannuation entity is less than $6,000 at the end of the entity’s income year, certain fees and costs charged to you in relation to administration and investment are capped at 3% of the account balance. Any amount charged in excess of that cap must be refunded. 2. [Where the amount for performance fees is zero or positive insert a footnote Investment fees and costs includes an amount of x.xx% for performance fees. The calculation basis for this amount is set out under “Additional explanation of fees and costs”. Where the amount for performance fees is negative, insert a footnote Information about performance fees is set out under “Additional explanation of fees and costs”.] 3. [If there are other fees and costs, such as activity fees, advice fees for personal advice or insurance fees, include a cross- reference to the “Additional explanation of fees and costs”.] Page 17 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 17 Explanation of ‘Ongoing annual fees and costs’ RG 97.38 As shown in Figure 2, the ‘Ongoing annual fees and costs’ comprise: (a) administration fees and costs; (b) investment fees and costs; and (c) transaction costs. Administration fees and costs RG 97.39 Administration fees and costs are defined in cl 101 of Sch 10. They are fees and costs that relate to the administration or operation of the superannuation entity to which the product relates and include distribution costs and: (a) costs that relate to administration or operation met through the use of reserves (for more information on costs met through the use of reserves, see RG 97.102–RG 97.106); (b) indirect costs that relate to administration or operation (for more information on indirect costs, see RG 97.284–RG 97.295); and (c) intrafund advice costs (see RG 97.41). RG 97.40 Administration fees and costs do not include: (a) transaction costs (for more information on transaction costs, see RG 97.344–RG 97.354); (b) excluded transactional and operational costs (for more information on excluded transactional and operational costs, see RG 97.355– RG 97.359); and (c) costs charged as another type of fee or cost. RG 97.41 Intrafund advice costs are costs incurred by the superannuation trustee of the superannuation entity for making available to all members, and providing to one or more of those members, financial product advice in relation to the product: see cl 101 of Sch 10. If the trustee provides financial product advice to a member that is not included within the definition of intrafund advice, the cost of that advice is captured as an advice fee and disclosed as ‘Other fees and costs’: see footnote 3 to the ‘Fees and costs summary’ in Figure 2. RG 97.42 Examples of the types of things that may be included in administration fees and costs are: (a) fees charged by the superannuation trustee for the administration and operation of the superannuation entity; (b) costs of administration or custody services; (c) audit costs; (d) product development costs; (e) costs of providing member communications; Page 18 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 18 (f) costs of professional indemnity insurance, directors’ and officers’ insurance, and other superannuation trustee insurances; (g) staff costs for member services teams and product teams; and (h) overheads (such as information technology costs and accommodation). Investment fees and costs RG 97.43 Investment fees and costs are defined in cl 101 of Sch 10. They are fees and costs that relate to the investment of the assets of a superannuation entity, and specifically include: (a) fees in payment for the exercise of care and expertise in the investment of those assets (including performance fees); (b) costs that relate to the investment of the assets of the entity that are met through the use of reserves (for more information on costs met through the use of reserves, see RG 97.102–RG 97.106); and (c) indirect costs that relate to the investment of assets of the entity (for more information on indirect costs, see RG 97.284–RG 97.295). RG 97.44 Investment fees and costs do not include: (a) transaction costs (for more information on transaction costs, see RG 97.47–RG 97.48); (b) excluded transactional and operational costs (for more information on excluded transactional and operational costs, see RG 97.355– RG 97.359); and (c) costs charged as another type of fee or cost. RG 97.45 Examples of the types of things that may be included in investment fees and costs are: (a) fees charged by the superannuation trustee that relate to investing the assets of the superannuation entity; (b) investment fees charged by an interposed vehicle (for more information on interposed vehicles, see RG 97.313–RG 97.343); (c) fees charged either by the investment manager appointed by the superannuation trustee or an interposed vehicle; (d) custody fees charged by either a custodian appointed by the superannuation trustee or an interposed vehicle (other than those charged as administration fees and costs); (e) internal staff costs for investment-related teams; (f) fees paid to asset consultants; and (g) valuation costs. RG 97.46 For information on performance fees, see RG 97.360–RG 97.363. Page 19 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 19 Transaction costs RG 97.47 Transaction costs are defined in cl 103(1) of Sch 10. Transaction costs are costs of the superannuation entity associated with acquiring or disposing of assets: for more information on transaction costs, see RG 97.344– RG 97.354. RG 97.48 In the ‘Fees and costs summary’, transaction costs are shown net of amounts recovered by the buy–sell spread charged by the superannuation trustee: see cl 204A of Sch 10. Transaction costs are shown in this way to highlight the costs that may affect a member’s investment, as some transaction costs will be paid for by members who are charged the buy–sell spread when they enter or exit a superannuation product: for information on the buy–sell spread, see RG 97.50–RG 97.51. Explanation of ‘Member activity related fees and costs’ RG 97.49 In addition to the ‘Ongoing annual fees and costs’, ‘Member activity related fees and costs’ can also be charged. As shown in Figure 2, they can comprise: (a) a buy–sell spread; (b) a switching fee; and (c) other fees and costs. Buy–sell spread RG 97.50 A buy–sell spread is a fee to recover costs incurred by the superannuation trustee in relation to the sale and purchase of assets of the superannuation entity: see cl 101 of Sch 10. This is charged to the member on entry or exit from the superannuation product or investment option. RG 97.51 A buy–sell spread that relates to an underlying investment of the superannuation entity forms part of transaction costs: see RG 97.353– RG 97.354. Switching fee RG 97.52 For MySuper products, a switching fee is a fee to recover the costs of switching all or part of the member’s interest in the superannuation entity from one class of beneficial interest in the entity to another: see cl 101 of Sch 10. RG 97.53 For superannuation products other than a MySuper product, a switching fee is a fee to recover the costs of switching all or part of the member’s interest in the superannuation entity from one product or investment option, or product in the entity, to another: see cl 101 of Sch 10. Page 20 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 20 Other fees and costs RG 97.54 These can include activity fees charged when the superannuation trustee undertakes activities for a member: (a) at the member’s request; (b) with the member’s consent; or (c) that are required by law. RG 97.55 Activity fees do not include costs charged as another type of fee or cost (e.g. administration fees and costs): see cl 101 of Sch 10. Examples of activity fees are fees charged for supplying information or dealing with superannuation accounts for family law purposes. RG 97.56 Examples of other fees that may be included in ‘Other fees and costs’ include dishonoured payment fees, fees for providing a member with personal advice, and insurance fees. RG 97.57 If there is an item under ‘Other fees and costs’, you must include a cross- reference to the ‘Additional explanation of fees and costs’, where an additional explanation of the ‘Other fees and costs’ must be provided: see cl 209(a) of Sch 10. How to fill in the ‘Fees and costs summary’ RG 97.58 You must ensure that fee information for each MySuper product and each investment option is set out in the ‘Fees and costs summary’, or that the summary contains a cross-reference to another section of the PDS that contains the relevant fee information: see cl 205 of Sch 10. RG 97.59 Some fees or costs may be charged across a MySuper product and other investment options in the superannuation entity. If this is the case, you must appropriately apportion the fees and costs so that the amounts in the ‘Fees and costs summary’ for each product or option reflect that portion of the fees or costs that relate to that particular product or option. RG 97.60 For further information on how to fill in the ‘Fees and costs summary’, see RG 97.365–RG 97.374. ‘Example of annual fees and costs’ RG 97.61 You must include an ‘Example of annual fees and costs’ in the ‘Fees and other costs’ section of a full PDS for superannuation products, following the ‘Fees and costs summary’: see reg 7.9.16N(2)(b) and cl 210(c) of Sch 10. An ‘Example of annual fees and costs’ is not required for defined benefit funds: see cl 213 of Sch 10. Page 21 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 21 RG 97.62 You must set out the ‘Example of annual fees and costs’ using the headings and form in cl 211 of Sch 10: see cl 210(b) of Sch 10. Figure 3 shows the ‘Example of annual fees and costs’ that you must complete for your superannuation product. Figure 3: ‘Example of annual fees and costs’ for superannuation products Example of annual fees and costs for superannuation products This table gives an example of how the ongoing annual fees and costs for the [insert name of generic MySuper product or other investment option as required by subclause 220(1)] for this superannuation product can affect your superannuation investment over a 1-year period. You should use this table to compare this superannuation product with other superannuation products. EXAMPLE—[insert name of generic MySuper product or other investment option as required by subclause 220(1)] BALANCE OF $50,000 Administration fees and costs [ ] For every $50,000 you have in the superannuation product, you will be charged or have deducted from your investment $[ ] in administration fees and costs PLUS Investment fees and costs [ ] And, you will be charged or have deducted from your investment $[ ] in investment fees and costs PLUS Transaction costs [ ] And, you will be charged or have deducted from your investment $[ ] in transaction costs EQUALS Cost of product If your balance was $50,000, at the beginning of the year, then for that year you will be charged fees and costs of $[ ] for the superannuation product. Note:* Additional fees may apply. How to fill in the ‘Example of annual fees and costs’ RG 97.63 We expect you to base the ‘Example of annual fees and costs’ on your generic MySuper product. If you do not offer a generic MySuper product, base the example on: (a) when a balanced investment option is offered—the balanced investment option under which most assets of the superannuation entity are invested; or (b) when no balanced investment option is offered—the investment option under which most assets of the superannuation entity are invested (see cl 220(1) of Sch 10). RG 97.64 The fees and costs stated in the ‘Example of annual fees and costs’ must be typical ongoing fees that apply to the MySuper product or investment option. They should not be based on ‘honeymoon’ rates and must be consistent with the statement for an existing member having the stated balance and level of contributions each year: see cl 214 of Sch 10. Page 22 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 22 RG 97.65 If the minimum balance required to join the superannuation entity is greater than $50,000, the ‘Example of annual fees and costs’ must be based on an amount that is the lowest multiple of $50,000 that exceeds the minimum balance: see cl 215 of Sch 10. RG 97.66 When investment fees and costs, administration fees and costs, or transaction costs, are disclosed as a range, the ‘Example of annual fees and costs’ must use the highest fees and costs in the range: see cl 218(2), (4) and (4B) of Sch 10. Also, the calculation of the fees and costs to be disclosed must not take into account contributions that may be made during the year: see the notes to cl 218(1), (3) and (4A) of Sch 10. RG 97.67 When the total amount of administration fees and costs includes an amount that applies regardless of the balance, the amount must be disclosed separately: see cl 218(2A) of Sch 10. You must include the words ‘, plus $[ ] regardless of your balance’ after the words ‘For every $50,000 you have in the superannuation product, you will be charged or have deducted from your investment $[ ] in administration fees and costs’. RG 97.68 When the amount for performance fees is negative, the amount of performance fees included in the investment fees and costs must be ‘0’: see cl 218(3A) of Sch 10. RG 97.69 If the ‘Example of annual fees and costs’ is for a lifecycle MySuper product, the investment fees and costs quoted must be the highest investment fee for a lifecycle stage of the lifecycle MySuper product: see cl 214A of Sch 10. RG 97.70 We encourage you to provide calculators or other tools elsewhere, on your fund website, so that members can calculate the fees they will be charged for the superannuation product using a balance other than $50,000. ‘Cost of product information’ RG 97.71 You must also include ‘Cost of product information’ for each MySuper product and investment option in the ‘Fees and other costs’ section of a full PDS for superannuation products, following the ‘Example of annual fees and costs’: see reg 7.9.16N(2)(b) and cl 220A(1)(a) of Sch 10. RG 97.72 As the ‘Example of annual fees and costs’ is only provided for one product or investment option (see RG 97.63), the ‘Cost of product information’ is designed to give consumers an abbreviated example of how fees and costs can affect their investment if they choose to invest in one of the other products or options offered in your full PDS. RG 97.73 You must calculate the ‘Cost of product information’ using the method for calculating the ‘Example of annual fees and costs’ shown in Div 6 of Sch 10: see cl 220A(1)(d) of Sch 10. Page 23 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 23 RG 97.74 Each stage and investment option of a lifecycle product is considered to be a separate option. Industry terminology may vary and some may call this a ‘cohort’ or ‘investment strategy’. If there is a common investment exposure for a group of members managed in aggregate, the issuer should consider whether it is an investment option for disclosure purposes. RG 97.75 You do not need to provide ‘Cost of product information’: (a) for a defined benefit superannuation fund (see cl 220A(2) of Sch 10); or (b) when a PDS relates to only one product or investment option and an ‘Example of annual fees and costs’ has been included for that product or option (see cl 220A(3) of Sch 10). RG 97.76 Figure 4 shows the heading and text (the ‘preamble’) you must include immediately before presenting the first ‘Cost of product information’. Figure 4: Preamble for ‘Cost of product information’ for superannuation products Cost of product for 1 year The cost of product gives a summary calculation about how ongoing annual fees and costs can affect your superannuation investment over a 1-year period for all superannuation products and investment options. It is calculated in the manner shown in the Example of annual fees and costs. The cost of product information assumes a balance of $50,000 at the beginning of the year. (Additional fees such as a buy–sell spread may apply: refer to the Fees and costs summary for the relevant superannuation product or investment option.) You should use this figure to help compare superannuation products and investment options. RG 97.77 Figure 5 shows the form you must use when setting out the ‘Cost of product information’. Figure 5: Form for ‘Cost of product information’ for superannuation products [Insert name of superannuation product or investment option] Cost of product $[ ] ‘Additional explanation of fees and costs’ RG 97.78 You must include an ‘Additional explanation of fees and costs’ in a full PDS for a superannuation product: see reg 7.9.16N(2)(a). You must include all the information listed in cl 209 of Sch 10 to the extent that information is relevant to the superannuation product. This can include information on: (a) performance fees (for more information on performance fees, see RG 97.360–RG 97.363); and Page 24 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 24 (b) transaction costs (for more information on transaction costs, see RG 97.47–RG 97.48 and RG 97.344–RG 97.354). RG 97.79 If you provide intrafund advice, you must also provide an explanation of intrafund advice costs: see cl 209(f) of Sch 10. The explanation should include: (a) a statement that intrafund advice costs are included in administration fees and costs; and (b) a cross-reference to another section of the PDS or to another place (such as the superannuation trustee’s website) where the member can find out more about intrafund advice services. RG 97.80 You must also provide an explanation of advice fees paid for providing financial product advice to a member: see cl 209(f) of Sch 10. Note: The prohibition on paying or receiving conflicted remuneration and the sole purpose test restrict the payments that can be made in relation to financial product advice: see Subdiv C of Div 4 of Pt 7.7A of the Corporations Act and s62 of the Superannuation Industry (Supervision) Act 1993 (SIS Act). RG 97.81 If the superannuation product offers insurance, you must include a cross- reference to the insurance section of the PDS: see cl 209(ca) of Sch 10. For more information on disclosing fees and costs for insurance, see RG 97.110– RG 97.112. RG 97.82 If the superannuation product is subject to tax, you must: (a) include a cross-reference to the tax section of the PDS (see cl 209(c) of Sch 10); and (b) state whether the benefit of any tax deduction is passed on to the member in the form of a reduced fee or cost (see cl 209(d) of Sch 10). RG 97.83 You must also include relevant information on: (a) your right to change the amount of fees and the period of advance notice required to do so; and (b) any change in fee structure that is dependent on a person’s employment (see cl 209(k) of Sch 10). RG 97.84 If you have instituted a flexible charging structure, the ‘Additional explanation of fees and costs’ must include, for each applicable fee: (a) any maximum, and when it would apply; and (b) any waiver, and when it would apply (see cl 209(l) of Sch 10). Note: We consider a waiver to be any possible reduction in the amount of the fees and costs disclosed in the ‘Fees and costs summary’, including through a rebate. Page 25 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 25 RG 97.85 We consider the requirement in RG 97.84 applies to fees that are shown as part of a line item in the ‘Fees and costs summary’ or are mentioned in the footnotes. RG 97.86 We expect you to consider what other information is appropriate to include in the ‘Additional explanation of fees and costs’. You should ensure that any other information is shown in a clear, concise and effective manner, as required by s1013C(3). When providing any other information, we encourage you to consider how you can disclose this information in a way that best meets the needs of the types of consumers who invest in your superannuation product. Fees and costs disclosure requirements for shorter PDSs RG 97.87 As set out in RG 97.31, most issuers of superannuation products must prepare a shorter PDS. The shorter PDS regime for superannuation products is facilitated by regulations that modify the Corporations Act: see Pt 5B of Sch 10A. RG 97.88 A shorter PDS must contain: (a) a ‘Consumer advisory warning’; (b) a ‘Fees and costs summary’; (c) an ‘Example of annual fees and costs’; and (d) other fees and costs information (which may be incorporated by reference). RG 97.89 A shorter PDS must be in the form set out in Sch 10D: see reg 7.9.11O(2). Schedule 10D sets length requirements for the shorter PDS (e.g. eight pages if it is printed on A4 paper), requires specific sections to be included and sets the content for each section. RG 97.90 Clause 8 of Sch 10D sets out the requirements for the ‘Fees and other costs’ section of a shorter PDS. Most of the requirements are the same as those in Sch 10. RG 97.91 A shorter PDS must also: (a) incorporate by reference the fees definitions in cl 209A of Sch 10 and include the address of a link to the definitions maintained on a website (see cl 8(6A) of Sch 10D, as modified by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070); (b) refer to our calculator and any calculator you provide on your website—it must also state that these calculators can be used to calculate the effect of fees and costs on account balances (see cl 8(8) of Sch 10D); and (c) set out a statement about your right to change the amount of fees without the member’s consent, the period of advance notice required, any indexation arrangements that apply, and any change to the fee structure that is dependent on a person’s employment (see cl 8(5) of Sch 10D). Page 26 REGULATORY GUIDE 97: Disclosing fees and costs in PDSs and periodic statements © Australian Securities and Investments Commission September 2020 Page 26 RG 97.92 You must include detailed information about the superannuation products you offer in section 5 (‘How we invest your money’) of a shorter PDS. This information includes a list of asset classes and a description of the investment return objective. At a minimum, you must provide this information for your generic MySuper product: see cl 7(3) and (4) of Sch 10D. RG 97.93 If you do not have a generic MySuper product, but you do have a balanced investment option, the detailed information must be provided for the balanced investment option under which most assets of the superannuation entity are invested: see cl 7(3) and (5) of Sch 10D. If you do not have a balanced i