The ASISA Retirement Savings Cost (RSC) Disclosure Standard came into effect on 1 March 2019. From 1 September 2019, ASISA members who sponsor commercial umbrella funds must present a comprehensive and standardised cost disclosure at the point of sale that illustrates all charges and costs over four investment timeframes. Further disclosure is required to illustrate the impact of all charges and costs on individual members, assuming different salaries and different retirement savings balances.
The new disclosure standard aims to improve the disclosure of charges and costs and facilitate comparison of umbrella funds on a like-for-like basis, with all charges and costs expressed as a percentage of assets. “This is excellent news for employers and for employee benefit consultants, who are expected to regularly review their clients’ umbrella fund arrangements.” says Duane Naicker, Head of Sygnia Umbrella Retirement Funds.
This disclosure is only relevant to employers and trustees and not for members. ASISA has, however, developed a standardised member-level cost disclosure for implementation from 1 October 2020.
The importance of the RSC Disclosure Standard
The new disclosure requires umbrella funds to be completely transparent about all charges and costs. From 1 September 2019, umbrella funds must disclose the following four charges to prospective participating employers – individually and in aggregate – over four periods:
Investment management charges: The new disclosure standard requires the total investment cost (TIC) to be disclosed, which includes the investment management fee, portfolio expenses and transaction costs. Employers and consultants will now have a complete picture of the total charges incurred in managing investment portfolios.
Advice charges: Consultants usually charge a payroll-based or asset-based fee for their advice. All such charges (excluding commission on insured risk benefits) must be included in the RSC disclosure.
Administration charges: Umbrella fund sponsors and administrators typically charge a fee for rendering administration services. These charges must be reflected separately as a percentage of assets in the RSC disclosure.
Other charges: Peripheral charges associated with the regulatory compliance and governance of retirement funds must also be brought to light under the new cost disclosure.
“The RSC Disclosure Standard is a necessary and welcome initiative for the financial services sector, and particularly for the umbrella funds industry. More disclosure will lead to improved awareness and better interrogation of charges and costs, resulting in lower charges and costs – either through more effective fee negotiations or by switching to an umbrella fund that makes more financial sense.” Continues Naicker. Consultants can now make recommendations to their clients based on a standardised assessment of charges and costs.
What should employers and trustees do?
Spend time with your umbrella fund providers and understand every charge and cost. If you are not already, become a product expert so that you can strip away fancy marketing to reveal important detail.
Understand the relationship between investment management fees, portfolio expenses and transaction costs. Compare Total Investment Charges (TICs), not only investment management fees. Fortunately, the new disclosure ensures this.
The RSC disclosure isolates advice fees from other charges and costs, and consultants (much like umbrella fund providers and administrators) must therefore be equipped to explain their value-add relative to the fees they charge.
Understand how umbrella fund providers calculate charges and costs over the various periods - focus on the explanatory notes, where important details will be disclosed.
“This new industry standard is a massive leap forward for the consumer and will drive transparency around hidden fees in the financial services sector, and charges and costs should now be one of the easiest factors to compare across competing umbrella retirement funds. This will also allow employers, boards of trustees and employee benefit consultants to spend more time comparing other areas of value across umbrella funds to identify the best offering for their members.” adds Naicker.