Significant development in updating Product Disclosure Statements

Responsible entities and superannuation trustees only have a matter of a few months to update Product Disclosure Statements (PDSs) for their funds or face the risk of ASIC enforcement action when the new fees and costs disclosure rules become effective in early 2017. Just as the financial services industry is coming to grips with these changes, there has been a significant development in the interpretation of a key element of the requirements.

With the 1 February 2017 deadline for updating all PDSs to meet new fees and costs disclosure requirements fast approaching, ASIC has now confirmed a significant change to the way transactional costs need to be calculated and disclosed. Those PDSs for managed funds and superannuation which do not meet these requirements will risk being in breach and the subject of ASIC enforcement action, notwithstanding the facilitative compliance period which has been announced.

ASIC has recently provided confirmation that PDSs will need to include additional information about transactional and operational costs, which will be a significant change to current market practice. This comes as part of the changes to fees and costs disclosure through the updates to Schedule 10 and RG 97.

In summary, ASIC has confirmed that in PDSs under the additional explanation of fees and costs for managed funds, the transactional and operational costs will need to include all the transactional costs i.e. not limited to those costs that are recovered by charging of the buy-sell spread. The additional information should also include an explanation of how the transactional and operational costs are charged.

This will mean indicating to what extent those transactional costs are borne in any buy-sell spread charged to investors being issued or redeeming interests and to what extent it is borne by the fund. In practice, this means PDSs will need to separately state those transactional costs associated with day-to-day trading in the format prescribed by clause 209(j) of Schedule 10.

This will come as a surprise to many in the market and will require careful consideration as to how to determine day-to-day trading costs, which are likely to include "implicit" costs such as those embedded in bid-offer spreads. We are now seeing managers develop policies and procedures to capture house views on these calculation issues and also to document the steps taken to meet the requirements from a compliance perspective.

Given the timing for the deadline and the practical difficulties with managers' and trustees' key personnel and due diligence committees organising reviews and sign off over the Christmas and January holiday period, we are now seeing many managers schedule PDS rolls for RG 97 compliance for before the end of 2016.

This is the first in a series of insights in which we address specific issues arising from the new product disclosure statement content requirements under updated Schedule 10 of the Corporations Regulations and ASIC's Regulatory Guide 97. Under these new rules, all PDSs are required to be compliant by 1 February 2017.

Nikki Bentley

I understand the financial services industry and thrive on helping our clients in this industry succeed.

Nikki Bentley Partner

Nikki is the Group Leader of Henry Davis York's Corporate Group, which includes the legal teams for Corporate / Mergers & Acquisitions; Investments & Financial Services and Tax.

Nikki is a leading investment funds advisor specialising in financial services and corporate law.  She specialises in business establishment and structuring, fund establishment, funds merger and acquisition, product disclosure and distribution. Nikki leads HDY's corporate group which combines expertise from the Financial Services, M&A and Tax areas.

Nikki provides advice to leading Australian and global fund managers on a full range of corporate, commercial and regulatory issues facing their businesses. She has considerable experience in assisting clients with fund establishment (onshore and offshore), disclosure and distribution. Nikki regularly advises clients on establishing, buying, selling and restructuring their businesses. She also regularly assists clients responding to regulatory enquiries and investigations.

With more than 15 years funds management experience in private practice, government and as an in-house lawyer, Nikki's practice spans the range of funds management products, with particular expertise in hedge funds, property funds and equities.

Nikki is regularly involved in industry and government discussions on regulatory reforms impacting the Australian funds management industry. Nikki is a passionate advocate for the development of a new corporate collective investment vehicle because of the opportunities it could provide to grow the funds management industry. She is the Honorary Legal Counsel and Chair of the Regulatory Committee for the Australian branch of the Alternative Investment Management Association (AIMA) and is a regular participant on the Financial Services Council (FSC) working groups.

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Jon Ireland

I constantly strive for technical excellence and commercial outcomes that add real value for my clients.

Jon Ireland Partner

Jon has extensive experience in corporate and financial services law, specialising in complex transactions, funds management and investment distribution. Jon also advises on regulatory issues relating to the use of technology in financial services.

Jon provides advice to leading Australian and international financial services clients on the full range of corporate, commercial and regulatory issues facing these businesses. He has considerable experience advising them on establishing, buying into, selling and restructuring their businesses.

Jon regularly advises on funds management issues including fund structuring, disclosure, investment management and outsourcing arrangements. He has particular expertise in the area of investment distribution and has advised on key projects for platform operators and advice providers.

Recently, Jon has advised on the establishment of a fully digital investment platform, the negotiation of a material outsourcing arrangement for a global investment bank and a scheme modernisation project for a leading Australian fund manager. Jon has also recently advised on the establishment of the Australian operations of a global diversified financial services business, including regulatory and corporate issues related to its expansion.

Jon's clients value his advice on recent law reforms, including around product disclosure statements and the digital provision of financial services. Jon is consulting to the Committee for Sydney and is a regular participant on Financial Services Council working groups.

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