Issues Relating to Fee Disclosure in Australian Investment and Superannuation Funds

In 2005, Rainmaker (2004b) predicts the total value of Australian sourced investment funds will, for the first time, exceed AUD$1 trillion ($1,000,000,000,000). This phenomenal achievement has been fuelled in part by compulsory superannuation and an insatiable appetitive among Australian investors for indirect equity investments (i.e. managed funds as opposed to direct share investments).In the first section of this paper, we examine the purchase decision for investors considering investment funds, highlighting the importance of fee disclosure in investment and retention decisions. Fee disclosure in the Australian investment market is expressed in a relative measure known as the management expense ratio (MER). This ratio is the only impersonal data source that can provide utility to an investor across the entire market.In the second section of this paper, we catalogue 17 typologies of fees payable by an investor in an Australian investment fund. We also highlight some important issues relating to inconsistent classification and the selective disclosure of fees in investment funds. These issues ultimately undermine the reliability of the MER for an investor to accurately compare fee disclosure across investment funds.In the final section, we review the current regulatory environment regarding fee disclosure, and examine the recent amendment to Australian legislation. We also provide a conclusion to the paper and highlight the potential issue that faces five million eligible superannuation investors who are considering switching investment in the wake of the Superannuation Choice legislation