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(June-2002) FSRA creates extra costs for funds
The Financial Services Reform Act (FSRA) looks set to create further compliance and legislative costs for superannuation funds offering member investment choice, an industry expert warns.
BT Financial Group senior vice president Dean Thomas says under section 1012ia of the FSRA, a fund that offers member investment choice is required to provide members with a Product Disclosure Statement (PDS) before they switch between investment choices.
“This cuts across all areas of wholesale superannuation and treats superannuation funds like Investor Directory Portfolio Services (IDPS),” he says.
“It will be extremely costly and time consuming for trustees to review all their investment options to allow the switching process to now comply with this provision, which is truly designed for custodial arrangements, not trustee arrangements.”
Thomas says super funds have not previously been required to provide a PDS because they are wholesale investors, where the trustee is the one who makes the investment decision and puts the investment strategy on the menu.
He says most funds have structured their arrangements to comply with regulation 402 of the SIS Act, which requires them to provide members with enough information needed to understand the risks and returns of an investment before they decide to switch. Funds have achieved this through annual reports, member statements, information packs and their Web sites.
Thomas says if there is a deficiency in regulation 402 of the SIS Act, he hasn’t heard about it yet.
While the decision was meant to take effect immediately from March 11 this year, lobbying by the Investment and Financial Services Association (IFSA) has managed to have it deferred until March 11, 2004.
Thomas is chairman of IFSA’s FSRA working group committee and says this committee will lobby Treasury in September when it starts its review. It will also provide a report outlining why the status quo should remain in place. He also suggests that super funds write to Treasury asking for the changes to not be adopted.
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