Counting the cost of improved product disclosure

Legal firm Kensington Swan reviews the success (or otherwise) of the new improved product disclosure regulations.

Wednesday, August 12th 1998, 12:00AM

Legal firm Kensington Swan says that the new improved disclosure rules that came into affect on April 1 have done little to help investors understand savings products.
The regulations, which spawned the Investment Statements, were designed to help the "prudent but non-expert investor".
Kensington Swan says most of the investment statements tend to be technical documents that have been carefully worded to comply with the technical requirements of the regulations.
"In many circumstances, products seem to be less clearly explained or understandable than they may have been under the previous disclosure regime due to the extent and nature of detail required.

"In terms of comparability between products and product types, the documents do not assist the investor. Comparing chalk and cheese cannot be done, however simple the disclosure is intended to be."
Kensington Swan says it would like to see the Securities Commission review the success of the disclosure regime.
It says the cost of imposing the regime has been high, and investment products will need to perform a whole lot better if they are going to absorb the costs of compliance.
A recent Association of Superannuation Funds survey shows that the average cost of compliance for employer sponsored superannuation schemes was around $15,000 per scheme.
"It could reasonably be expected that the cost in the larger retail schemes would be two or three times this amount for each product/prospectus."
The survey estimates that getting the new prospectus process in place absorbed 100 hours of management time for each product.
Kensington Swan says the process has been of great educational value for management in understanding their products and highlighting and inconsistencies or errors within existing advertising and promotional material.
It says the real monetary value of this "due diligence" process has been negligible.

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