Attack on disclosure

THE disclosure of fees and charges in the managed funds industry is inconsistent and inadequate, a new report has found.

The report, by University of Melbourne Professor Ian Ramsay, says that: “Substantial numbers of investors fail to understand the fees that are disclosed in prospectuses”.

Professor Ramsay saved his harshest words for the periodic statements sent to managed fund investors.

“Disclosure of fees and charges in periodic member statements varies to an extraordinary degree. I view this situation with the utmost concern,” Professor Ramsay says.

He analysed 30 different prospectuses and found significant variation with fee disclosure.

Professor Ramsay has recommended that standardised definitions and descriptions of all fees should be adopted.

All relevant fees should be disclosed in the fees section of product disclosure statements (PDSs).

This could be in the form of a standard table identifying all significant fees – entry, exit, switching and investment management.

To the maximum extent possible, standardised descriptions should apply across both superannuation and managed funds products to enhance comparability.

For instance, Professor Ramsay suggests that the ongoing management charge used by superannuation funds “would seem to be more accurate” than the management expense ratio used by managed funds.

“Consideration should be give to whether the terminology OMC can be used across all products,” he says.

Other areas needing attention included the “so-called buy/sell spread”, the sources of adviser payments, and “soft commissions”, such as bonus payments to advisers.

To improve disclosure in member statements, the report recommends that the actual fees relating to specific investments should be calculated and disclosed in dollar terms.

The report was commissioned by ASIC as part of a project to foster better disclosure.

It will be used to facilitate further consultation by ASIC with industry and consumer groups about future disclosure standards.