As the debate rages around the FoFA rollback and the CBA financial planning scandal, ASIC has turned it focus to the producers of the products that planners and advisers sell – the fund managers.
The AFR reports that ASIC will release a report this morning looking at “gaps and inconsistencies” in the funds management industry.
Of particular focus are the “under-quoting” of fees by by managers who place funds in “fund of funds” structures. These structures are those where a manager pools funds for investment in other managers.
The AFR reports that ASIC commissioner Greg Tanzer said this leads to an under-reporting of fees because “at least $620 billion of super funds are in so-called ‘interposed entities’ such as pooled super trusts, wholesale funds, life offices and unlisted unit trusts”.
Interestingly, ASIC is also focused on swap transactions which are used by managers to reduce risk within a fund.
Tanzer told the AFR:
We think [such transactions] should be treated as a management cost because you’ve chosen this particular way, and it’s better to disclose that as a management cost so that the disclosure is fair, up-front and people can assess whether you’re managing it in a more expensive or a cheaper way than another fund manager.
To me, this seems like a complete over-reach by ASIC.
If ASIC is saying that a swap or derivative to manage risk is a management cost then surely any investment decision that is above or below the stated benchmark position, that a fund manages to, is also a management decision or cost.
That’s why you choose a fund manager – their skill.
You can read more here.