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

Costs and pricing Chapter 3

Different classes of units arise where a manager wants
to apply different charges to different types of investors Income accrual
in the same fund. Income accrual is defined in CISCA
Institutional and clean classes as any dividends or interest (or
B and C unit classes (amongst other letters) are any other income) received by the
generally based on fee structures applicable to trustee, custodian or manager on behalf of investors
in a portfolio and for distribution to investors.
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 Quartile
class) may charge an investment platform only 0.69% Technically, a quartile is the mid-point
via a B unit class. of either the top or bottom half of a
Although unit trust annual fees are often thought of as data set (the median is the mid-point
investment management fees, the charges levied by the data value).
manager may contain other elements. Many annual fees A top quartile fund is therefore a fund which has beaten
actually consist of an investment management portion at least 75% of other funds. A bottom quartile portfolio
and an administration portion, for example. The admin has been beaten by at least 75% of other funds.
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 into effect on 1 April 2000, unit trusts
were permitted to apply different fees to different investors in the same fund. Some management
companies introduced up to four tiers of charges.
Deregulation of charges was in fact first implemented in 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 provided they notified unitholders.
Existing funds, however, were only permitted to change their fees if they obtained the approval of
unitholders. Existing funds lobbied for the same flexibility as new funds (ie, the freedom to vary their
charges). Under the old system, unit trusts were obliged to offer the same scale of charges to all
investors, and many management companies wanted to be able to offer reduced fees to institutions
without reducing fees to individual investors.
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:
R Class R charges apply to funds in existence before June 1998, and to unitholders invested
prior to 1 April 2000.
R 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.
R 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).

Profile’s Unit Trusts & Collective Investments September 2025 65