Page 61 - Profiles's Unit Trusts & Collective Investments - September 2024

Costs and Pricing

Are the fees capped? Where no maximum fee is stipulated performance fees can rob
investors of a significant portion of their return.
In August 2015 the ASISA board approved a Performance Fee Standard which became effective
for ASISA members in January 2017. The 11-page document, available on the ASISA website, seeks
to guide the actions of managers to ensure acceptable practices in the levying of performance fees.
The standard aims to embed the principles of fairness, consistency, transparency, accuracy,
completeness and appropriateness in the design, calculation and disclosure of performance fees.
Portfolio Charges
Portfolio charges refer to certain costs incurred in securities trading and administration which
managers may levy directly against the fund.
Up until 2002, all equity-based unit trust funds levied so-called “compulsory charges”, which usually
amounted to about 0.7% of the amount invested. (Tracker funds charged the same level of compulsory
charges, as the brokerage costs for buying underlying shares were typically the same as for actively
managed funds.) This charge was designed to cover the costs to the fund of purchasing securities.
These costs consist of:
STT (Securities Transfer Tax): 0.25% of
the value of share purchases (not sales).
Brokerage charges levied by the
stockbroking firm: anywhere from a
fraction of a percent (discount brokers) to
1.0% (full service brokers).
STRATE Settlement costs: 0.005787% but
capped at R98.04 per trade (min R7.45)
Investor protection levy: 0.00029% of the
transaction value.
CISCA did away with “compulsory charges”.
Instead, various costs associated with portfolio
management (including the transaction costs
listed above) may be charged directly to the
portfolio by the manager.
This differs significantly to what happened with “compulsory charges”, where the management
company collected a set fee whenever units were purchased, regardless of the actual costs of buying
securities. The “compulsory charges” accumulated in the Management Company’s own coffers,
and the costs of buying and selling securities were paid by the Management Company from these
fees. Under CISCA, brokerage and other costs are simply charges against the portfolio itself and
form part of the total fund expenses. These are, of course, a direct charge against fund
performance.
Hopefully this gives fund managers an incentive to monitor costs, to keep costs as low as
possible, and to avoid any unnecessary turnover in holdings.
In terms of CISCA (section 93), the amounts which a manager is entitled to deduct from a
portfolio are as follows:
All charges payable by the manager in the process of buying and selling securities and other
assets for the portfolio. These include:
brokerage
marketable securities tax
value-added tax
stamp duties
Auditor’s fees, bank charges, trustee and custodian fees and other levies or taxes
Share creation fees payable to the Registrar of Companies for the creation of authorised
capital or, in the case of a collective investment scheme in property, the costs incurred in the
creation and issue of participatory interests.

Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts 59