Page 57 - Profile's Unit Trusts & Collective Investments - March 2025

Costs and Pricing

Initial Fees
Clean Price/ There has been a huge swing away from initial fees
Clean Pricing
in the unit trust industry, and very few fund managers
In the unit trust industry, the clean or platforms in South Africa still charge initial fees.
price (also sometimes called the Where initial fees are charged it is often for upfront
flat price) refers to the value of the portfolio fees payable to an intermediary for advice services, not
before taking into account accrued income. to a deduction that flows directly to the manager or
Accrued income (interest and dividends due) LISP.
per unit is added to the clean price per unit to
arrive at the NAV. In terms of CISCA, charges are completely
deregulated, and managers of collective investment
More recently, “clean pricing” (in the active schemes can, quite literally, charge whatever they like –
tense) refers to full disclosure and no “unseen”
fees or hidden charges. (Other classes may provided all costs are fully disclosed. CISCA does not, in
contain within the disclosed fee, for example, fact, directly address the issue of initial charges. The Act
both administration charges and the annual defines what charges can be made by the manager
investment management fee. The admin fee is against the portfolio, but places no limits on what initial
often paid as a rebate to a LISP.) charges can be deducted before participatory interests
Where a fund has several classes, the “clean are purchased. However, as noted it is the norm to not
class” does not include any other fees (such as charge initial fees. As at July 2024 only a tiny minority
administration fees) on top of the investment of localretailfunds were stilllevying anysortofinitial
management fee. The clean class, in other fee. This excludes fees payable to financial advisers and
words, is a unit class which does not contain to platforms.
any rebatable fee portion. Try to avoid confusing initial charges levied by the
fund, the platform and the adviser. At Profile Media,
we often use the term “entry costs” to describe the
Switching total upfront costs which apply when buying units or
Switching is the movement of an participatory interests – which could include,
investment from one fund/CIS to depending on the channel, advice fees and platform
another. fees.
An investor may switch unit trusts, for example, By aggregating transactions from many retail
when his or her investment objectives change investors, LISPs (platforms) “buy in bulk” from
or because of a change in market conditions. management companies and qualify for lower
Most management companies make it easy to “institutional” fees – although note that not all funds
switch from one fund to another within their have institutional unit classes. In the past this meant
ownfamilyoffunds. A feature of LISPsisthat investors potentially got an attractive discount on
they make it easy to switch across different entry costs if they went through a LISP; today the
management companies. discount through a LISP, where applicable, is usually
Switching may incur fees although many in the ongoing costs rather than the entry costs.
managers and platforms now offer free
switches (see Switching Costs section). Advice Fees
Commission-based fees no longer apply to many
new investment products. Instead advisers are expected to agree on thier fees with their clients.
This may include an initial fee collected from the investment, although initial fees are less
common. Independent advisers typically charge a flat fee for their initial plan or an hourly rate.
Adviser fees must be disclosed and agreed to by the investor. Advice fees can be negotiated
with the adviser.
Tied brokers (typically employees of large institutions) may work within old legacy systems
where an advice fee is part of the initial fee. Eg, an initial fee of 5% (5.75% including VAT) includes
an advice fee of 3% (3.45% including VAT) which is paid to the broker by the manager. Most
managers, however, have moved away from this system. Some have no initial fee at all but will
collect the advice fee (usually up to a maximum of 3.45%) and pay this to the adviser if approved
by the client.
Where initial charges are levied by the LISP (platform) it should be disclosed as a seperate item
from the advice fee, even if the LISP collects an initial advice fee from the investment on behalf of
an adviser.

Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts 55