Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 197

New RG97 rules will increase disclosed fees

Many fund managers and trustees are struggling to understand how to apply the increased disclosure obligations of Regulatory Guide 97 – Disclosing fees and costs in PDSs and periodic statements (RG 97) to their business models.

ASIC’s RG 97 requires managed investment fund and superannuation product issuers to provide more detailed data about fees and costs, including from underlying investment vehicles. These changes are designed to create a more level playing field, giving customers greater transparency and allowing meaningful comparisons between products.

Product providers struggling, ASIC extends deadline

The new requirements differ between superannuation and managed funds and implementing them is proving a challenge. One-third of industry attendees at a recent EY forum on RG 97 admitted they were still struggling to understand the requirements.

Recognising these concerns, ASIC recently extended the transition period for Product Disclosure Statements (PDSs) until 30 September 2017 (from the original 1 February 2017) but there are no plans to issue further extensions. PDSs must be fully RG 97 compliant by that date, while periodic statements have until 1 January 2018.

Only 2% of attendees at the recent forum said they had completed the new fee disclosures process. So, what exactly should funds be doing to prepare for and implement the changes and what are the likely impacts?

Interpreting the disclosure requirements for implicit costs

Much of the confusion lies in the complexity of how to calculate implicit transaction costs, with some applications requiring several estimates. While the ASIC guidance does not specifically reference 'implicit costs', it categorises these transaction costs as the difference in price between the purchase and immediate sale of an asset. The limited industry guidance for some of the more exotic assets is leading to difficulty in calculating reasonable estimates.

Making reasonable efforts

RG 97 requires a ‘reasonable estimate’ in determining fees and costs where exact amounts are unknown, but the guidance does not specifically define 'materiality'. Issuers will need to consider industry standards and investors’ perspectives and keep clear records on their methodology and results. Estimates should include the information available, relationships with third-party providers and data integrity, absolute and relative size of costs, relevant time periods and causes of change.

There may be circumstances where issuers are aware that future costs may be materially different to disclosures in the PDS, and this will require an explanation. For example, where a change in investment strategy is planned.

Calculating costs of OTC derivatives

The calculation and materiality of OTC derivative transaction costs is more complex and may require professional judgement because transaction costs are often implicit within the price of these derivatives.

These transactional costs must be disclosed as indirect costs except where fund managers use derivatives for hedging purposes, such as hedging currency or interest rate exposures, in which case they should be disclosed as transactional and operational costs. 

Average fee metrics likely to increase

Overwhelmingly, attendees at our forum said they expect the more detailed fee estimation methodology and diagnostics will lead to a significant rise in disclosed fees. Almost a quarter (24%) expect a high impact because of the changes, with fees rising more than 50 basis points (0.50%). 37% expect an increase of between 20 to 50 basis points, and a further 37% expected a 5 to 20 basis points rise. Just 2% of attendees said they were not expecting any material change in fees.

While ASIC is aware that the new requirements could make some products appear more expensive, the regulator believes cost is only one of a range of factors customers consider when evaluating products. Asset allocation, investment strategy and performance also play a part. Greater consistency, transparency and visibility of fee disclosures will allow investors to make better-informed choices.

Issuers will need to consider how an increase in fees will be perceived by consumers and factor that into their plans. The new disclosures will make it easier to benchmark and compare fees across products and providers. A communications strategy that includes clear, timely engagement with customers should be an essential component of each organisation’s implementation process.

 

Darren Handley-Greaves is a Financial Services Partner with Ernst & Young Australia. The views expressed in this article are the views of the author, not Ernst & Young. The article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.

RELATED ARTICLES

ASIC creates a level playing field on fees

Is DDO change to hybrids a drawback for investors?

D’oh! DDO rules turn some funds into a punching bag

banner

Most viewed in recent weeks

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

The 2025 Australian Federal election – implications for investors

With an election due by 17 May, we are effectively in campaign mode with the Government announcing numerous spending promises since January and the Coalition often matching them. Here's what the election means for investors.

Finding the best income-yielding assets

With fixed term deposit rates declining and bank hybrids being phased out, what are the best options for investors seeking income? This goes through the choices, and the opportunities and risks involved.

What history reveals about market corrections and crashes

The S&P 500's recent correction raises concerns about a bear market. History shows corrections are driven by high rates, unemployment, or global shocks, and that there's reason for optimism for nervous investors today. 

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Latest Updates

Investment strategies

4 ways to take advantage of the market turmoil

Every crisis throws up opportunities. Here are ideas to capitalise on this one, including ‘overbalancing’ your portfolio in stocks, buying heavily discounted LICs, and cherry picking bombed out sectors like oil and gas.

Shares

Why the ASX needs dual-class shares

The ASX is exploring the introduction of dual class share structures for listed companies. Opposition is building to the plan but the ASX should ignore the naysayers and bring Australia into line with its global peers.

The state of women's wealth in Australia

New research shows the average Australian woman has $428,000 in net wealth, 40% less than the average man. This takes a deep dive into what the gender wealth gap looks like across different life stages.

Investing

The two most dangerous words in investing

Market extremes are where the biggest investment risks and opportunities lie. While events like this are usually only obvious in hindsight, learning to watch out for these two words can alert you to them in real time.

Shares

Investing in the backbone of the digital age

Semiconductors are used to make microchips and are essential to a vast range of technology and devices. This looks at what’s driving demand for chips, how the industry is evolving, and favoured stocks to play the theme.

Gold

Why gold’s record highs in 2025 differ from prior peaks

Gold prices hit new recent highs, driven by a stronger euro, tariff concerns, and steady ETF buying – all while the precious metal’s fundamental backdrop remains solid amid a shifting global economic landscape.

Now might be the best time to switch out of bank hybrids

In this interview, Schroders' Helen Mason discusses investing in corporate and financial credit securities, market impacts of tariffs, opportunities for cash investments, and views on tier two and hybrid bonds.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.