Page 67 - Profile's Unit Trusts & Collective Investments - March 2025

Costs and Pricing

Although unit trust annual fees are often thought of as investment management fees, the
charges levied by the manager may contain other elements. Many annual fees actually consist of an
investment management portion and an administration portion, for example. The admin portion
may be paid as a rebate to a LISP or investment platform by the manager because the LISP is
relieving the manager of a large part of the administrative burden (the LISP puts through bulk
transactions, meaning the manager does not have to deal with many individual investors).
A “clean class” does not contain any rebates paid to a platform or LISP. From an investor’s
point-of-view, the disclosed fees of a clean class transparently reflect what is being paid to the asset
manager, the administrator and the adviser without disguising payments between the three service
providers.
A and R Classes
In terms of changes approved by the FSCA which came
Income Accrual
into effect on 1 April 2000, unit trusts were permitted to
Income accrual is defined in apply different fees to different investors in the same fund.
CISCA as any dividends or Some management companies introduced up to four tiers of
interest (or any other income)
received by the trustee, custodian or charges.
manager on behalf of investors in a Deregulation of charges was in fact first implemented in
portfolio and for distribution to investors. June 1998. New funds created after June 1998 were given
permission to set their own fees (ie, they were not limited by
the Unit Trusts Control Act), and they were free to vary fees
Quartile provided they notified unitholders.
Technically, a quartile is the Existing funds, however, were only permitted to change
mid-point of either the top or their fees if they obtained the approval of unitholders.
bottom half of a data set (the Existing funds lobbied for the same flexibility as new funds
median is the mid-point data value). (ie, the freedom to vary their charges). Under the old
A “top quartile” fund is therefore a fund system, unit trusts were obliged to offer the same scale of
which has beaten at least 75% of other charges to all investors, and many management companies
funds. A “bottom quartile” portfolio has wanted to be able to offer reduced fees to institutions
been beaten by at least 75% of other without reducing fees to individual investors.
funds.
As a result of these pressures, unit trust fees were further
deregulated from April 2000. In order to protect pre-2000
investors, management companies may not increase the fees of those unitholders. A fund
established before 1998 that wants to increase fees has to have two structures: it has to preserve
the old structure (usually as Class R fees), and must then introduce a new scale (usually Class A
fees) to apply to new investors. All of these changes can apply to both initial charges and annual
fees.
In summary:
Class R charges apply to funds in existence before June 1998, and to unitholders invested
prior to 1 April 2000.
The charges apply to both lump sums and debit orders. In other words, a CIS manager cannot
increase either initial charges or annual fees for an existing debit order client established
before 1 April 2000.
On reinvestment of dividends from a lump sum investment made prior to 1 April 2000, the fund
is also obliged to stick to the old charges (ie, Class R charges).
Class A charges are applicable to all new investments into funds with Class A charges. Not all
funds necessarily have both Class A and Class R fees (some have stuck with their old fees).
Class B and C units are based on fee structures which apply to institutions or other
“wholesale” clients. CIS managers are sometimes reluctant to publish these fee structures.

ETF Unit Classes
Unlike other collective investments, an ETF can only have one unit class (separate unit classes
would require separate listings on the stock exchange).

Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts 65