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Digging deeper to disclose indirect investment costs

Superannuation  |  31/07/2017  |   3 min read

On 30 September 2017, all super funds will be required to disclose investment fees differently. For most investment options, this will mean that it will look like investment fees have increased, but that’s not the case.

What is changing is the way in which super funds are required to disclose information to you.
This illustration shows how the new disclosure rules will not affect the net return you will receive on your investment. 

ICR-diagram-(1).jpg

The fees deducted from your account will continue to be calculated in the same way. However, under the new rules we disclose amounts, which are the underlying costs associated with your investments and known as ‘Indirect Cost Ratios’ or ‘ICR’. 

These costs have always existed and have been captured in the daily unit prices for your investment options. ICRs are the expenses met by other parties in looking after the fund’s underlying assets.
So what are the costs?

To help you understand ICRs, we will use unlisted property and infrastructure investments as examples. Often Equip holds these assets indirectly, through unit trusts. Occasionally, we may hold these assets directly, which may become more likely now a merger has grown our asset base to $14 billion.

The costs of running these investments include various property management costs, interest payments on loans that may have been incurred in their purchase and development and on-going maintenance. 

These costs are not charged to Equip, but are paid by other parties, such as property or infrastructure trusts in which we invest on your behalf. As these costs are met, they are deducted from the overall value of the asset, which is and has always been reflected in the unit prices of your investment option/s.

On the other hand, investment management costs directly incurred in running Equip’s internal investment team and fees paid to external investment managers are reflected in the investment fee which continues to be accounted for when unit prices are calculated.

The ICR for each investment option will vary depending on the asset allocation and investment managers used.

Equip is working with a number of other funds and the industry regulator, ASIC, on the proper method for disclosing investment fees. We will include the ICRs calculated for each investment option in Product Disclosure Statements (PDS) dated from 30 September 2017.

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