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Fee RG bargy
BY ALEX DUNNIN | FRIDAY, 22 SEP 2017   3:59PM

As the superannuation and managed investment sectors get ready to implement the new RG97 fee regime, we should take a moment to marvel at what we are witnessing. It's not often we see such a display of multi-layered complexity thrown at what is essentially a simple problem.

I wait with baited breath to see the piece de resistance that awaits us in the next set of guidelines for PDSs or how we will solve the Select Choice dashboard challenge.

The objective of RG 97 is nevertheless a noble one: put steel into how super funds and managed investment schemes disclose the true total costs customers pay to use their products. In doing this ASIC is absolutely to right to more methodically drill down under the surface to tease out below-line costs and de facto fees that might have previously escaped scrutiny.

But it's the new fee disclosure guidelines' need for so many artificial lines between super funds, platforms, different types of investment options and even different asset types that is mind-boggling. ASIC doesn't see it this way mind you, something that just folds the complexity back onto itself like one of those optical illusion mobius bands.

How else can you interpret the need for the "platform test", "asset test", "PDS test" or the need for the conceptual gymnastics of "interposed investment vehicles" and forcing funds to diagnose precisely what type of investment option is their property fund? No wonder RG 97 is up to its fourth edition

Compared to these, the requirement for costs to be declared in arrears and fees progressively is child's play, as is the need for indirect cost ratios (ICR) to be compiled by investment option.

This complexity most likely arose because ASIC, coming from a lawyer-based view of the world, seemingly over-interpreted the role of platforms to somehow be distinct from the function they perform: administering super fund investment menus.

Just ask anyone trying to keep up with the evolving platform space - they will tell you whether a super fund uses a "platform" is immaterial because any system that performs those functions is one; it's just that some are more sophisticated than others.

In this way an industry fund using traditional administrative systems is just as much a platform as is the latest managed account; which is what makes separate proposals that product dashboards exempt platforms absurd.

This is why ASIC's recent media statement that "it would be misleading for a platform operator to compare its platform based solely on the fees and costs it charges investors with the fees and costs charged by non-platform super funds" appears so out of place.

The way ASIC is viewing the various managed investment choices on investment menus is just as esoteric. Sure the objective is elegant enough - create the interposed vehicle framework to guide Responsible Entities regarding how deep they need to dig to unearth indirect costs.

As a result, investors using some managed account model portfolio managers that assemble not direct holdings but portfolios of managed funds including multi-manager multi-asset funds could be in for quite a surprise when they next open their annual fee statement and view their upwardly revised ICRs.

Definitional plumbing aside, what has unnerved some super fund compliance teams is the implied extra cost disclosure required if their super fund invests directly into property or infrastructure. Given the disproportionately high impact these investments have had on long term performance this is understandable.

In response ASIC might have hinted at the indirect costs they are interested in are not those of the underlying asset but of the investment vehicle enabling the exposure to these assets, yet it's still perplexing they haven't yet just answered these concerns head-on with a simple statement and put the issue to bed.

Surely the last thing anyone - least of all the governments desperate for infrastructure investment - wants is for super funds to move away from unlisted direct assets just because interposed vehicles get soft fee disclosure treatment.

How will all this play out? Easy. RG 97's enhanced fee and cost disclosure, if it makes fee metrics less comparable, will push super fund members and investors to swap to net investment returns as their primary measure of investment value.

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