Page 66 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 3

Knowing your ABCs
Historically, unit classes have followed tacit rules: A for retails funds, B and C for
institutional funds, and so on. It’s important to note that these “rules”are not an industry
requirement – managers can in fact use any letters or numbers to differentiate unit classes.
(The only exception is R, which denotes a regulated class and identifies fund classes established
before June 1998.) Exercise caution, therefore, before drawing conclusions about retail and
institutional classes based on alpha codes.

one fund manager to another. A potential disadvantage is the temptation to switch from one fund
manager to another when performance is below par.
Many financial advisers are partnering with discretionary fund managers (DFMs) who select
and blend investment portfolios for their clients. DFMs also charge fees investors a fee when they
manage portfolios on investment platforms for clients. Alternatively, they create their own
multi-managed unit trusts and their fees are included in the ongoing fees on these funds.
Investing through a platform often changes the way fees are applied somewhat. The main
implications are:
Underlying fund fees may be less
An additional layer of costs will be imposed by the LISP and the DFM
As we will cover later in this chapter, funds often have multiple unit classes with different fee
structures. The unit classes made available to bulk buyers, like LISPs, typically have lower fees
(and lower TERs) than retail classes. This means that the investment performance of a fund
bought through a LISP, if platform fees are ignored, will be slightly better than the performance of
the same fund’s retail class. However, the net performance of an investment via a platform may be
less attractive after paying the LISP fees.
It’s important to note that performance tables (including rates of return) published by stats
providers like ProfileData do not factor in platform fees. Generally the fund performance figures
available on LISP websites are also, ironically, shown before the impact of LISP costs (ie, returns to
the LISP client are lower than shown).
Similarly, the fee information shown for underlying funds on a platform website (such as TERs
and TICs) pertains to each fund and does not include the LISP fees that will be levied over and
above the fund fees. The costs reported by a platform under the EAC model should, however,
capture both the underlying fund costs and the costs of the platform itself.
As we saw earlier, the annual fees of a fund manager are deducted from the portfolio, which
means the NAV unit price is net of manager fees. But a LISP’s ongoing fees are deducted from the
client’s LISP account. To cover their fees, LISPs will sell units of funds in the client’s portfolio if
there is no cash in the client’s account.
Unit Classes
While looking at pricing, it must be noted that a collective investment scheme can have
different classes of participatory interests. Looking at this from the point of view of unit trusts,
these are usually known as A, R, B and C classes, although a fund is not restricted to these classes,
and can create others.
Different classes of units arise where a manager wants to apply different charges to different
types of investors in the same fund.

Institutional and Clean Classes
B and C unit classes (amongst other letters) are generally based on fee structures applicable to
institutions and other wholesales clients, such as LISPs and investment platforms.
The “institutional” classes typically offer discounted fees. For example, a fund that charges retail
investors a 1.15% annual fee (via the A unit class) may charge an investment platform only 0.69%
via a B unit class.

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