(L-R) Steven Tang and Toby Potter

The disclosure of managed account performance fees can be “very confronting” for clients, but advisers can articulate the nuance and complexities.

“A client may come in and say, ‘well, those fees are quite high’,” Zenith Investment Partners head of consulting Steven Tang tells Professional Planner.

“But [the fees] are based on a five-year historical average, and [clients may not have to pay them] right now. It’s very hard to explain to a client that that’s the case, because they’re not as financially literate as an adviser.”

Tang explains that other products will also typically go through periods of low-performance but still report high-performance fees, making the total fees look higher to clients.

“It needs to be remembered that performance is typically reported after fees,” he says. “Any historical performance also considers higher fees [due to] out-performance.”

IMAP chair Toby Potter says managed account fees are “relatively complex”.

“There are quite a number of functions that separate our client from the underlying investment,” he says.

The rules and instructions for disclosing fees are set by ASIC’s Regulatory Guide 97. They aim to help advisers explain fees to consumers in simple terms and subsequently assist them in making informed choices.

“Historically, advisers would have probably disclosed an investment management fee for products,” Tang says.

“For products that have done well historically [such as managed accounts], the disclosure of all fees can be meaningful; however, [the total amount may not be the amount] the client will pay, but an indication what they may pay if out-performance continues.”