Page 53 - Profile's Unit Trusts & Collective Investments - March 2026

Costs and pricing Chapter 3

buying units or participatory interests – which could
include, depending on the channel, advice fees and Clean price/clean pricing
platform fees. In the unit trust industry, the clean
By aggregating transactions from many retail investors, price (also sometimes called the
LISPs (platforms) “buy in bulk” from management flat price) refers to the value of the
companies and qualify for lower “institutional” fees – portfolio before taking into account accrued income.
although note that not all funds have institutional unit Accrued income (interest and dividends due) per unit
classes. In the past this meant investors potentially got is added to the clean price per unit to arrive at the NAV.
an attractive discount on entry costs if they went through More recently, clean pricing (in the active tense)
a LISP; today the discount through a LISP, where refers to full disclosure and no “unseen” fees or
applicable, is usually in the ongoing costs rather than hidden charges. (Other classes may contain within
the entry costs. the disclosed fee, for example, both administration
Advice fees charges and the annual investment management fee.
Commission-based fees no longer apply to many new The admin fee is often paid as a rebate to a LISP.)
investment products. Instead advisers are expected to Where a fund has several classes, the “clean class” does
agree on their fees with their clients. This may include an not include any other fees (such as administration
initial fee collected from the investment, although initial fees) on top of the investment management fee. The
fees are less common. Independent advisers typically clean class, in other words, is a unit class which does
charge a flat fee for their initial plan or an hourly rate. not contain any rebatable fee portion.
Adviser fees must be disclosed and agreed to by the
investor. Advice fees can be negotiated with the adviser.
Tied brokers (typically employees of large institutions) Switching
may work within old legacy systems where an advice fee Switching is the movement of an
is part of the initial fee. Eg, an initial fee of 5% (5.75% investment from one fund/CIS to
including VAT) includes an advice fee of 3% (3.45% another.
including VAT) which is paid to the broker by the manager. An investor may switch unit trusts, for example, when
Most managers, however, have moved away from this his or her investment objectives change or because of
system. Some have no initial fee at all but will collect the a change in market conditions.
advice fee (usually up to a maximum of 3.45%) and pay Most management companies make it easy to switch
this to the adviser if approved by the client. from one fund to another within their own family of
Where initial charges are levied by the LISP (platform) funds. A feature of LISPs is that they make it easy to
it should be disclosed as a separate item from the advice switch across different management companies.
fee, even if the LISP collects an initial advice fee from the Switching may incur fees although many managers
investment on behalf of an adviser. and platforms now offer free switches (see switching
Advisers may negotiate ongoing fees with investors costs section).
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.

Debit orders and reinvestment
Advice fees do not only apply to initial lump sums. As a rule, brokers will also receive commission
on monthly debit orders. Some managers also pay commission on reinvestment of income (ie, on
purchase of units for the client with distributions) where the client has selected this option. This is
usually at the same rate (percentage) applied to lump sums.
Kickbacks and rebates
Kickbacks, rebates and so-called “wholesale discounts” are commissions, often not disclosed,
paid to an adviser or LISP by a manager. Typically a portion of a fee earned by an asset manager or
LISP is paid back to an intermediary as a reward for selling the asset manager’s product, or paid by a
manager to a LISP for administration services.

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