RG97 effects inconsistent: Rainmaker

The effects of fee disclosure reforms under Regulatory Guide 97 have trickled through market segments and asset classes revealing uneven results, Rainmaker's research shows.

A high level analysis shows not-for-profit (NFP) superannuation funds have over twice the increase on fees compared to retail funds. Among the asset classes, property investment options have more than five times the increase on fees than either equity or fixed interest options.

For the default investment option, the average increase in combined investment fees and costs among NFP and retail funds were 23 basis points and 11 basis points respectively.

Rainmaker noted there has effectively been no impact on cash options, while fixed interest and equity investment options have had a less than 10 basis point increase. The biggest impact was seen in property investment options, with an average increase of greater than 40 basis points.

Hedged or alternative assets also saw marked increases of more than 30 basis points.

The effect of RG97 on retail funds has been significantly dampened by the investment approach and use of underlying platform products, Rainmaker said.

Under the new framework, NFP funds tend to have higher average investment fees compared to retail funds, which in part reflects greater internal investment management of NFP funds. About one-quarter of NFP funds do not allocate any fees to the indirect cost ratio (ICR), and pool all investment costs into the investment fee field.

Rainmaker said it is important to recognise that net investment returns are not impacted by the movement in these fees, assuming there was no change in underlying asset mix.

By way of example, a property investment option with a net return of 7% and an investment fee of 70 basis points would have an implied gross return of 7.7% - under the new fee disclosures it would still have a net return of 7%.

But with fees increasing to 110 basis points, it would have an implied gross return of 8.1%; the underlying gross return would not change, but simply grossed up further by incorporating more fees, Rainmaker said.

Read more: RainmakerFee disclosureRegulatory Guide 97RG97
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