Page 65 - Profile's Unit Trusts & Collective Investments - September 2025

Costs and pricing Chapter 3

Reduction in yield (RiY)
RiY is a method used by the life assurance industry to illustrate the possible effect of costs on
an investment. It is expressed as a percentage designed to estimate the decrease in total annual
returns likely to be attributable to costs.
The total annual return is the percentage gain per year as a result of capital appreciation, interest
and dividends (assuming these are reinvested). An RiY of 3% means that the product provider
expects that 3% of the annual return – over the life of the product – will be absorbed by costs.
This figure can be deceptive: it reflects actual percentage points, not a fraction.
For example, assuming total growth of 10% per annum, an RiY of 3% means a net return of 7%
per annum (not 93% of 10%, which would be a net return of 9.3% per annum). To put it differently, if
a fund suffered zero growth, a so-called 3% RiY would mean a 3% per annum reduction in capital,
which equates to 14% total loss over five years (ignoring income).
RiY, as a future estimate rather than an historical calculation, is fraught with problems and can
be misleading. Firstly, the projected annual return, which is an unknown, impacts the RiY inversely
(ie, RiY rises with returns where annual fees are a percentage of investment value). So conservative
projections actually understate RiY. Secondly, because it includes upfront costs (like commissions),
it is sensitive to the time period – the RiY on a product held for 10 years will be lower than the RiY
over five years, all other things being equal. Hence assurers can play down RiY by using long time
period projections. Thirdly, RiY does not take into account penalties that may be levied if contractual
contributions are reduced or stopped (and, historically, a minority of policies go the distance).
These and other factors mean that RiY is a highly inexact method of estimating costs to the investor.
Retirement savings cost (RSC) disclosure
The RSC, effective from March 2019, is designed to assist potential and existing employers
and/or boards of trustees (referred to as “clients” in the ASISA standard) when comparing retirement
fund quotations.
The RSC differs from the EAC because the latter is aimed at individuals. The RSC is aimed at
employers and trustees, it is not a member level cost disclosure standard and is not designed for
individual fund members.
For products that combine life cover and investment plans, the RSC applies to the savings
element only.
The RSC Disclosure Standard does not apply to RA funds (including group RA funds),
preservation funds, beneficiary funds, compulsory annuities and other retail products provided that
they are disclosing the EAC.
The template must show four separate components into which defined charges are allocated over
four investment periods:
R Investment management charges
R Advice charges
R Administration charges
R Other charges including regulatory, compliance and governance costs
The RSC is calculated separately for each of the four components and then totalled to derive the
RSC for the umbrella fund as a whole. The value for each of the components, as well as the total
RSC, is expressed as a percentage of the investment amount. (See Table 3.4 on the next page).
Fund and platform fees
As mentioned earlier, the fees covered thus far have been described from the point of view of a
single fund and relate to purchases made directly from the fund managers (either online or with the
help of a financial adviser).
In practise, many investors buy into unit trusts via LISPs or investment platforms (sometimes
referred to as unit trust supermarkets). Advantages of investing via a platform include access to a
much wider range of funds (compared to one management company) and ease of switching from
one fund manager to another. A potential disadvantage is the temptation to switch from one fund
manager to another when performance is below par.

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