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

Costs and pricing Chapter 3

Try to avoid confusing initial charges levied by the fund,
the platform and the adviser. At Profile Media, we often Clean price/clean pricing
use the term “entry costs” to describe the total upfront In the unit trust industry, the clean
costs which apply when buying units or participatory price (also sometimes called the
interests – which could include, depending on the flat price) refers to the value of the
channel, advice fees and platform fees. portfolio before taking into account accrued income.
By aggregating transactions from many retail investors, Accrued income (interest and dividends due) per unit
LISPs (platforms) “buy in bulk” from management is added to the clean price per unit to arrive at the NAV.
companies and qualify for lower “institutional” fees – More recently, clean pricing (in the active tense)
although note that not all funds have institutional unit refers to full disclosure and no “unseen” fees or
classes. In the past this meant investors potentially got hidden charges. (Other classes may contain within
an attractive discount on entry costs if they went through the disclosed fee, for example, both administration
a LISP; today the discount through a LISP, where charges and the annual investment management fee.
applicable, is usually in the ongoing costs rather than The admin fee is often paid as a rebate to a LISP.)
the entry costs.
Where a fund has several classes, the “clean class” does
Advice fees not include any other fees (such as administration
Commission-based fees no longer apply to many new fees) on top of the investment management fee. The
investment products. Instead advisers are expected to clean class, in other words, is a unit class which does
agree on their fees with their clients. This may include an not contain any rebatable fee portion.
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. Switching
Adviser fees must be disclosed and agreed to by the Switching is the movement of an
investor. Advice fees can be negotiated with the adviser. investment from one fund/CIS to
Tied brokers (typically employees of large institutions) another.
may work within old legacy systems where an advice fee An investor may switch unit trusts, for example, when
is part of the initial fee. Eg, an initial fee of 5% (5.75% his or her investment objectives change or because of
including VAT) includes an advice fee of 3% (3.45% a change in market conditions.
including VAT) which is paid to the broker by the manager. Most management companies make it easy to switch
Most managers, however, have moved away from this from one fund to another within their own family of
system. Some have no initial fee at all but will collect the funds. A feature of LISPs is that they make it easy to
advice fee (usually up to a maximum of 3.45%) and pay switch across different management companies.
this to the adviser if approved by the client. Switching may incur fees although many managers
Where initial charges are levied by the LISP (platform) and platforms now offer free switches (see switching
it should be disclosed as a separate item from the advice costs section).
fee, even if the LISP collects an initial advice fee from the
investment on behalf of an adviser.
Advisers may negotiate ongoing fees with investors that are based on assets under advice and
the LISP may collect these from the investment on the adviser’s behalf from the investment and pay
it over to them. Investors can instruct LISPs to stop these fees.
Commission collected as ongoing or trailer fees typically only applies to old or legacy insurance
products.
Adviser fees have evolved since the FAIS Act and FSCA’s Retail Distribution Review (RDR) which
proposed a system where financial advisers would be remunerated on an activity basis: advisers
would have been expected to charge for what they do (preparation of a financial plan, provision of
product advice, paperwork and administration). These proposals are still under discussion.
The RDR is an over-arching policy initiative, including some proposals which have already been
implemented by way of changes to existing legislation, regulation or guidelines, and others that
will reflect in future in various parts of the regulatory framework, including the Conduct of Financial
Institutions (COFI) Bill (see Chapter 5).

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