Review of the Managed Investments Act 1998

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 Submissions - Eng Seng Toh

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Eng Seng Toh

28 August 2001

Mr Malcolm Turnbull
Ministerial Appointee
Managed Investments Act Review
c/o Financial Markets Division
The Treasury
Langton Crescent
Parkes ACT 2600

Dear Mr Turnbull,


I refer to an advertisement on page 8 of the 9 August 2001 issue of the Sydney Morning Herald inviting submissions regarding the captioned statute.

I'd like to make submissions regarding the operation of the Act on two issues - first, the issue of access to governance documents (the Constitution and Compliance Plan) of managed investments; secondly, the issue of clearer disclosure of fees and costs for managed investments.


I submit that governance documents should be made available to investors upon request or that the documents be made available on a website for viewing and downloading (e.g. as a pdf file in the commonly accepted Adobe Acrobat format).

At present, it seems that industry practice in this regard is not uniform. Some leading fund managers do make copies of these documents easily accessible -for no fee- to investors; others (usually the smaller funds, but not always) insist upon physical attendance in their offices to peruse and digest these documents.

I realise that not all investors bother to read these documents before investing but some of us in the investing public like to conduct a more rigorous due diligence before parting with our cash.

I suggest that in this modem age it ought to be possible to provide these documents - without charging a fee - to interested investors, especially if the internet is employed for this purpose. It does not cost a lot to provide access to these documents.

Accordingly, all fund managers ought to be able to emulate the following responses made by some leading investment managers:

• "Copies of the Constitutions and the Compliance Plan are available free of charge from Commonwealth Financial Services Simply call our Customer Sales and Service Centre on 13 2 015 between 8 am and 8 pm (Sydney time), Monday to Friday. " (page 13 of Commonwealth Financial Services' prospectus for Commonwealth Investment Funds issued on 7 October 1999 and expiring on 6 November 2000).

• "A copy of any of the above mentioned Constitutions may be inspected by investors at Vanguard's office, during business hours. Vanguard will provide investors with a copy of the required Constitution, upon request. " (page 48 of Vanguard Investments Australia Limited's prospectus for Vanguard Investor Funds issued on 3 January 2001 and expiring on 2 February 2002).

• "... you can obtain a copy of the ASSET Super Trust Deed from the ASSET Super web site at under the section titled `Applications/Forms' " (page 24 of the Australian Superannuation Savings Employment Trust Key Features Statement and Fund Information Brochure published on 16 June 2000 and expiring 16 June 2001).

The Act or related subordinate legislation ought to be amended to bring about this situation.


Management fees ought to be disclosed in a variety of ways as suggested by Alan Kohler's article entitled "Really, it's a super scandal" on page 22 of the 25-26 August 2001 issue of the Australian Financial Review:

"In fact it requires no more than a simple computer program and just a few minutes to calculate all the fees that an individual will pay for the management of his or her superannuation, and then to present that figure in a variety of ways: as a percentage of assets, an estimated dollar amount, the percentage of contributions and an estimate of how much the fees will reduce the financial retirement benefit by. There is, in fact, no reason why fund members could not be shown all of the methods of fee disclosure at once."

Mr Kohler was discussing the implications of a report on superannuation funds prepared by Dr Hazel Bateman of the University of NSW's School of Economics for the Australian Institute of Superannuation Trustees, but the same concerns on fee disclosure apply to the arena of non-super retail managed funds.

Two other disclosures should be made: the transaction costs that an equity managed fund incurs in the turnover of its portfolio, and the comparison of a managed fund's expense ratio with that of its peer group, for the reasons cited by John C. Bogle's Commonsense on Mutual Funds: New Imperatives for the Intelligent Investor (John Wiley & Sons, Inc., New York, 1999) on page 323:

"But the other heavy cost of fund ownership is not disclosed. the transaction costs that the fund incurs in the turnover of its portfolio ... But the indirect cost of turnover often rivals the direct fund costs that are disclosed Funds ought to be required to estimate them and disclose them in their prospectuses

I have also urged - so far, without success - that a comparison of a fund's expense ratio with that of its peer group be required in the annual report. Overextended periods, costs often make the difference between top-quartile (or, for that matter, bottom-quartile) returns and average returns. "

The Act or related subordinate legislation should be amended to bring about these clearer disclosures on fees and costs.

Thank you for taking the time to consider the issues raised in these submissions.

Please put me on your mailing list to receive a copy of your written report when you deliver it to the Minister for Financial Services and Regulation on or about 3 December 2001.

Thank you for your assistance.

Yours faithfully,

Eng Seng Toh


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