RG97 FAQNew fee and cost disclosure requirements

Updated 30 September 2017

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Table of contents

Background to the new disclosure requirements ................................................................... 2

About the new disclosure requirements ................................................................................. 4

1. Are there any changes to the fees or costs MLC charges due to RG 97? ................ 4

2. When are the disclosure changes effective? ............................................................. 4

3. When will final figures for the new fee and cost disclosures be available? ............... 4

4. What are the changes? ............................................................................................. 4

5. How does RG 97 affect the way fees and costs are disclosed? ............................... 6

6. What’s the impact of the changes for MLC’s products? ............................................ 7

Updates to MLC’s PDSs and tools......................................................................................... 8

7. When will MLC’s PDSs reflect the disclosure changes? ........................................... 8

8. Do the PDSs dated 1 July 2017 for the MLC Wholesale Index Plus portfolios reflect the new RG97 disclosure requirements? ........................................................................... 8

9. When will the Fund Profile Tool reflect the disclosure changes? .............................. 8

10. When will the advisers’ cost calculators reflect the disclosure changes? ............. 8

Communicating with my clients .............................................................................................. 9

11. How is MLC communicating the disclosure changes to my clients? ..................... 9

12. When will MLC’s statements reflect the new disclosure requirements? ............... 9

Understanding indirect costs ................................................................................................ 10

13. What are indirect costs? ...................................................................................... 10

14. Why does MLC use alternative investment strategies that incur indirect costs? 10

15. Why do indirect costs differ for the same investment options across different products? .......................................................................................................................... 11

16. Can a client request a waiver of the indirect costs? ............................................ 11

17. How often will indirect costs change? .................................................................. 11

Updates to FAQ at 30 September 2017 .............................................................................. 12

18. What are the updated fees and costs MLC is disclosing? ................................... 12

19. How does MLC’s updated disclosure of fees and costs compare with competitors’? .................................................................................................................... 12

20. Where are MLC’s updated PDSs available? ....................................................... 12

21. How do these changes impact advisers? ............................................................ 12

22. How does the disclosure change affect Statements of Advice (SoAs)? ............. 12

23. What are the changes to the Fund Profile Tool? ................................................. 12

This FAQ is an overview of the most important changes. It is not an exhaustive list of every change, and this FAQ will be updated as needed over the next few months.

Background to the new disclosure requirements

Following an ASIC review, new requirements for fee and cost disclosure have been introduced to make it easier for your clients to compare different super and investment products. This is an industry-wide change for all issuers of super and managed investment products.

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For MLC’s existing products, these changes are reflected in updated Product Disclosure Statements (PDSs), Financial Services Guides (FSGs) for IDPS products and online tools. Changes will also be reflected in customers’ future statements.

The new disclosure requirements are set out in ASIC Class Order 14/1252 (as amended by ASIC Legislative Instruments 15/876, 16/1224 and 17/664) and in updated ASIC Regulatory Guide 97 – Disclosing fees and costs in PDSs and periodic statements (‘RG 97’).

While there are some changes to the amounts and types of fees and costs stated in MLC’s PDSs, FSGs and statements, it’s important to note that:

There are no new fees or costs being charged, so members won't pay any

more. These are simply changes to how existing fees and costs are disclosed.

There's no impact on the after fees and costs performance of members'

investments. The way we calculate investment performance hasn't changed.

ASIC expects these industry-wide changes will provide more accurate and consistent disclosure to customers and that the fee and cost amounts disclosed will generally increase.

More information

Our RG 97 adviser microsite is available at mlc.com.au/rg97 and on the ‘Resources’ tab of Adviser Online. There you’ll find resources to support client conversations about how MLC invests, the value of our investment management approach and the benefits of using strategies that incur indirect costs.

If you have questions, please speak to your MLC Representative or call us on 133 652 between 8am and 7pm AEST, Monday to Friday.

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About the new disclosure requirements

1. Are there any changes to the fees or costs MLC charges due to RG 97?

No, there are no new fees or costs, and no changes to the way fees and costs are charged. The only change is to the way existing fees and costs are disclosed.

The RG 97 changes may mean some increases in the amounts of fees and costs disclosed. However, your clients won’t pay any more and there will be no impact on the performance of their investments.

2. When are the disclosure changes effective?

PDSs and FSGs for existing products must comply by 30 September 2017. New products launched after 1 February 2017 must comply from launch.

3. When will final figures for the new fee and cost disclosures be available?

Figures are now available in updated PDSs and FSGs.

For all MLC MasterKey super and pension products, the updated fee and cost amounts are also available through the Fund Profile Tool. For funds that are not issued by MLC which are offered through MLC Wrap and Navigator products and MasterKey Investment Service and MasterKey Investment Service Fundamentals, the fee and cost amounts displayed in the Fund Profile Tool are provided by MorningStar (an external research house). It will take some time for all of the updated fee and cost amounts for these funds to be made available through the tool. During this interim period, please refer to the fund’s PDS available at mlc.com.au/findafund for the most up to date information about the fees and costs that apply to the relevant fund.

4. What are the changes?

The changes are to the disclosure of indirect costs, performance fees, transactional and operational costs (including property operating costs), and borrowing costs. These changes apply to both super and managed investment products.

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Indirect costs

The changes to disclosure of indirect costs are the key changes brought about by

RG 97.

The definition of indirect costs has been expanded as a result of the changes.

Indirect costs are costs associated with the underlying investments of a super or

managed investment product which may reduce the return. For MLC products,

indirect costs are generally fees or costs incurred when MLC’s investment managers

invest in derivatives and specialised external funds. The returns from these

underlying investments are included in the performance of the super or managed

investment product after the manager of the underlying investment has deducted the

indirect costs.

For super products, indirect costs have been disclosed in PDSs as the Indirect Cost

Ratio (ICR) since July 2014. RG 97 now requires these costs to be disclosed

differently and some new items to be included, such as costs relating to property

investments and derivative products. Under RG 97 there is some discretion as to

whether indirect costs are disclosed in PDSs as part of Investment Fees or in the

ICR. Our trustee has elected to disclose these costs in the ICR. Other trustees may

choose a different approach. For managed investment products, indirect costs are now disclosed in the

‘Management costs’ section of the fees table of a PDS.

While the actual costs clients pay won’t change as a result of RG 97, the total amount

of management costs will generally be higher than previously disclosed due to the

inclusion of indirect cost amounts.

More about indirect costs and the benefits of using investment strategies that include them is in the section ‘Understanding indirect costs’ below.

Transaction costs, borrowing costs and property operating costs

The PDS section ‘Additional explanation of fees and costs’ has been expanded to include:

details and amounts of transactional costs incurred when an investment manager

buys or sells assets, such as stamp duty, brokerage and settlement costs. There’ll

also be additional information about how these costs are recovered through buy/sell

spreads (where applicable),

borrowing costs:

o for super products, if incurred indirectly through investments in underlying

funds, and

o for managed investment products, if incurred directly or indirectly through

investments in underlying funds, and

for super products an estimate of property operating costs where the fund or

investment option invests in property.

Performance fees

A performance fee is generally a fee paid to an investment manager when they perform above a certain level. RG 97 clarifies what amounts can be described as performance fees and how these amounts must be disclosed in a PDS.

If a performance fee is calculated on only a portion of the assets in an investment option, it can no longer be disclosed as a performance fee in the PDS. Where this is the case, the performance fee amounts must be treated as a cost and the amount to be disclosed must be the actual performance costs incurred for the previous financial year.

For superannuation investment options, these amounts can either be included in investment fees or treated as indirect costs and included in the indirect cost ratio. Our trustee has chosen

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to disclose these amounts as indirect costs.

In previous versions of MLC’s super and pension PDSs, estimated performance fees for an investment option were disclosed as part of the Investment Fee. They are now included as a component of the indirect cost ratio.

Where performance costs form part of the Indirect Cost Ratio, a breakdown of these amounts will be disclosed for the relevant investment option in the Investment Menu.

All performance fees and costs for managed investment schemes are included as part of management costs disclosed in the PDS.

5. How does RG 97 affect the way fees and costs are disclosed?

There are three main impacts:

1. Increased ‘looking through’: fund managers will need to look more deeply into their

investment structure to identify all costs that are incurred for underlying investments.

This may involve seeking additional information from external fund managers,

investment companies and companies responsible for the management and

operation of some asset classes, including property, private assets and infrastructure.

2. There are some new items that are required to be disclosed, such as the costs of

using derivative products, borrowing costs, and costs of managing and operating

property.

3. Costs for existing investment options will be based on the actual costs incurred in the

investment option’s previous financial year. These amounts will still include estimates

where some of the actual costs incurred during the previous financial year are

unknown. Currently, costs are disclosed based on a forward-looking estimate.

We expect these changes to mean an increase in the amounts of fees and costs disclosed. However, your clients won’t pay any more and there will be no impact on the performance of their investments.

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6. What’s the impact of the changes for MLC’s products?

Product Impact on disclosure

MLC MasterKey super onsale products, including:

MLC MasterKey Business

Super

MLC MasterKey Super and

Pension Fundamentals

MLC MasterKey Super and

Pension

Generally, the indirect cost ratio disclosed for investment options will be higher.

Where applicable, there are also changes to how transactional costs, borrowing costs and property operating costs are disclosed in PDSs.

MLC MasterKey super offsale products, including:

MLC MasterKey Five Star

MLC MasterKey Gold Star

allocated pension products

Generally, the indirect costs disclosed for investment options will be higher.

The PDSs for these products won’t be updated as they are no longer onsale. However, updated figures are displayed on the Fund Profile Tool and in your clients’ next statements.

MLC MasterKey investment products, including:

MLC MasterKey Unit Trust

MLC MasterKey Investment

Service Fundamentals

MLC MasterKey Investment

Service

Generally, the management costs disclosed for managed investment product options (including those issued by MLC Investments Limited) are higher, as they include indirect costs.

There may also be changes to how transaction costs and (if applicable) borrowing costs are disclosed in PDSs of the managed investment product options.

MLC Wrap super and investment products, including:

MLC Wrap

MLC Navigator and badges

Generally, the management costs disclosed for managed investment product options (including those issued by MLC Investments Limited) are higher as they now include indirect costs.

There may also be changes to how transaction costs and (if applicable) borrowing costs are disclosed in PDSs of the managed investment product options.

MLC Investment Trusts for example the MLC Wholesale Horizon 4 Balanced Portfolio and the MLC Wholesale Inflation Plus - Moderate Portfolio

Generally, the management costs disclosed for managed investment products are higher as they now include indirect costs.

There may also be changes to how transaction costs and (if applicable) borrowing costs are disclosed in PDSs.

MLC Separately Managed Accounts (SMA) product

There is no impact to the existing SMA product, as it already discloses all fees and costs required by the new regulations.

This PDS will have a Supplementary PDS applied to notify customers of changes related to the termination of some models portfolios.

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Product Impact on disclosure

Antares Equities products, for example the Antares High Growth Share Fund and the Direct Separately Managed Account (DSMA) product

The only change for these products is how transaction costs and (if applicable) borrowing costs are disclosed in PDSs.

There is no impact on the DSMA product, as it already discloses all fees and costs required by the new regulations.

NABAM boutique fund products, managed by:

Redpoint

Presima

Intermede

Fairview

Altrinsic

The only change for these products is how transaction costs and (if applicable) borrowing costs are disclosed in PDSs.

Updates to MLC’s PDSs and tools

7. When will MLC’s PDSs reflect the disclosure changes?

For our existing onsale products, we issued updated PDSs that reflect the new disclosure changes on 30 September 2017.

8. Do the PDSs dated 1 July 2017 for the MLC Wholesale Index Plus portfolios reflect the new RG97 disclosure requirements?

Yes. Products issued after 1 February 2017 were required to reflect the new disclosures.

For new products, estimates of fees and costs have been used in some cases to calculate the figures for disclosure.

9. When will the Fund Profile Tool reflect the disclosure changes?

The Fund Profile Tool was updated with MLC fund data on 30 September. For funds that are not issued by MLC which are offered through MLC Wrap and Navigator products and MasterKey Investment Service and MasterKey Investment Service Fundamentals, the fee and cost amounts displayed are provided by MorningStar (an external research house). It will take some time for all of the updated fee and cost amounts for these funds to be made available through the fund profile tool. During this interim period, please refer to the fund’s PDS available at mlc.com.au/findafund for the most up to date information about the fees and costs that apply to the fund.

Whilst fee and cost amounts are being updated, the amounts shown in the Fund Profile Tool may differ from those set out in the latest PDS or FSG.

10. When will the advisers’ cost calculators reflect the disclosure changes?

MasterKey

MasterKey Investment Service Fundamentals

MasterKey Investment Service

Once the PDSs have been updated, we will update this calculator. During this transition period please refer to the PDS for the relevant investment option for the most up to date information about the fees and costs that apply to the option. These PDSs are available on mlc.com.au/findafund

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WRAP

The fees and costs displayed in this calculator are the latest available figures received from MorningStar.

Once the PDSs have been updated, we will update this calculator. During this transition period please refer to the PDS for the relevant investment option for the most up to date information about the fees and costs that apply to the option. These PDSs are available on [Wrap/Navigator] mlc.com.au/findafund [Badges]<website>/Fund disclosure documents.

Communicating with my clients

11. How is MLC communicating the disclosure changes to my clients?

Super clients

Your super clients received a newsletter, ‘Important update about your super’, including an item about the RG 97 changes, with their 30 June 2017 annual statements. The statements were mailed to clients from 24 July 2017. The newsletter item, which is in Appendix 1 of this FAQ, explained the disclosure changes in general terms.

Any clients who joined an MLC super product between 1 July and 29 September 2017 will receive a letter explaining the disclosure changes in general terms. This will be sent mid-November 2017.

Investment clients

Your retail clients who hold investment products will receive an update after 30 September 2017 either with their quarterly statement for 30 September 2017 or in a separate communication.

12. When will MLC’s statements reflect the new disclosure requirements?

RG 97 requires some changes to statements for your clients to reflect the enhanced disclosure of fees and costs.

The changes to statements will occur as follows:

Statement From when the RG 97 changes will be shown

Super and pension products (including MLC Wrap, Navigator and badges)

Exit statements For any clients exiting from 1 December 2017

Annual statements For the year ending 30 June 2018

MLC MasterKey Unit Trust, Antares Equities and NABAM boutiques

Exit statements For any clients exiting from 1 July 2017

Quarterly statements For statements for the period ending 30 September 2017

There’ll be no change to statements for these IDPS products:

MLC MasterKey Investment Service Fundamentals MLC MasterKey Investment Service, and

MLC Wrap Investments.

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Understanding indirect costs

13. What are indirect costs?

Super and managed investment products may invest customer money into various underlying investments. The returns from these investments are passed back to the products after the costs of the underlying investments have been deducted by the managers of the underlying investments. These costs are known as indirect costs and are not charged by, or paid to, the trustee of the super or managed investment product.

For MLC products, indirect costs are generally fees or costs incurred when MLC’s investment managers invest in derivatives and specialised external funds, as shown in Figure 1. These specialised external funds are usually alternative investments, such as hedge funds or private assets funds. These types of assets aren’t easily accessible to most investors because they aren’t traded on listed exchanges.

MLC has been investing in alternative assets for many years and these assets have played a key role in generating longer-term returns that are higher than those of listed shares, or delivering positive returns when other asset classes are weak.

Figure 1 – Where most indirect costs are incurred

For example, MLC’s private assets manager may invest in an external private assets fund and incur the costs or fees charged by the manager of that fund. That cost is classified as an indirect cost.

Similarly, MLC’s Low Correlation Strategy in MySuper consists of several different underlying strategies managed by different managers. The MLC Alternative Strategies team, which is the manager of the Low Correlation Strategy, generally invests in these strategies through external investment funds, such as hedge funds. The costs or fees charged by the external hedge fund managers are classified as indirect costs.

14. Why does MLC use alternative investment strategies that incur indirect costs?

When deciding whether to include an asset class or strategy in our products, we consider many factors, including all costs. We believe that alternatives, which generally have higher costs than mainstream assets, will have a positive impact on the return or risk outcome, after costs are deducted.

We invest in alternatives to help diversify the sources of risk and return in our portfolios. With more diversification, we aim to deliver less volatile performance and a smoother overall pattern of returns. In particular, the alternatives we invest in can help diversify away from the performance of listed shares, which are usually the main growth assets in a fund. In difficult share markets, these alternatives can cushion returns.

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For example:

Our Low Correlation Strategy is made up of several complementary strategies.

They’ve been selected because their returns are not strongly linked either with each

other or with share market returns.

We invest in private assets because they tend to outperform global share markets

over the long term and can provide strong returns when listed share markets are

weak.

15. Why do indirect costs differ for the same investment options across different products?

An investment option’s indirect costs are determined by its exposure to asset classes with indirect costs. Investment options may have different asset allocations in different products.

For example, our MLC Horizon 4 portfolio investment option for super products has exposure to private assets. However, the MLC Wholesale Horizon 4 managed investment product that’s offered through our IDPS products and MLC Super Wrap product does not currently have exposure to private assets.

16. Can a client request a waiver of the indirect costs?

No. Indirect costs are part of the product’s cost of investing. Since they aren’t charged directly to an investor, they can’t be waived.

17. How often will indirect costs change?

An investment option’s indirect costs will generally change when its exposure to asset classes with indirect costs changes.

RG 97 requires costs for existing products to be calculated each year and updated, so there may be some changes to indirect costs each year. However, if an investment option’s asset allocation remains largely unchanged, we expect little change to the indirect costs.

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Updates to FAQ at 30 September 2017

18. What are the updated fees and costs MLC is disclosing?

A full list of fees and costs for MLC’s products before and after RG 97 is available by logging in to Adviser Online. These will be available mid-October. Please visit the RG 97 section of the ‘Resources’ tab on Adviser online.

19. How does MLC’s updated disclosure of fees and costs compare with competitors’?

Many issuers are releasing their updated disclosure documents at the end of September. We will provide a comprehensive analysis of our competitive position during October.

20. Where are MLC’s updated PDSs available?

They can be downloaded from the ‘Forms and documents’ section of mlc.com.au. From 06 October 2017, they will also be available through EasyOrder.

21. How do these changes impact advisers?

In addition to ensuring advisers provide their clients with current version disclosure collateral, there are some interim steps required by advisers for a 2month interim period in order to provide compliant advice.

It may take up to two months for the updated fees and costs to flow through to Platform menus and financial planning software (e.g. XPLAN and SOA templates). This is an industry-wide issue, as most of the new data will only become available on 30 September 2017.

22. How does the disclosure change affect Statements of Advice (SoAs)?

Please refer to your licensee.

23. What are the changes to the Fund Profile Tool?

There are 5 key changes to the FPT to align with the RG97 disclosure changes from 30 September 2017.

• Generic footnote wording changes.

• Fee section re-sequence and formatting – these changes will not apply to MLC Limited issued products.

• By changing formatting, it makes it clearer that that the customer will only be charged the Management or Investment Fee

• FPT Rates table name change

• Adding costs to the FPT rates table – these changes will not apply to MLC Limited issues products

• Costs will only be displayed where applicable

• Label updates within tables.

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Important information

This information is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705), Antares Capital Partners Ltd ABN 85 066 081 114, AFSL 234483, NULIS Nominees (Australia) Limited (ABN 80 008 515 633, AFSL 236465) and Navigator Australia Limited (ABN 45 006 302 987, AFSL 236466), members of the National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) (NAB) group of companies (NAB Group), 105–153 Miller Street, North Sydney 2060.

NAB does not guarantee or otherwise accept any liability in respect of any financial product referred to in this publication. This document has been prepared for licensed financial advisers only. This document must not be distributed to “retail clients” (as defined in the Corporations Act 2001 (Cth)) or any other persons.

Any opinions expressed in this communication constitute our judgement at the time of issue and are subject to change. We believe that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made at the time of compilation. However, no warranty is made as to their accuracy or reliability (which may change without notice) or other information contained in this communication.

You should obtain a Product Disclosure Statement (PDS) relating to the financial products mentioned in this communication issued by MLC Investments Limited, Antares Capital Partners Limited, NULIS Nominees (Australia) Limited or Navigator Australia Limited and consider it before making any decision about whether to acquire or continue to hold these products. A copy of the PDSs are available upon request by phoning the MLC call centre on 132 652 or on our website at mlc.com.au OR mlcinvestmenttrust.com.au