Page 62 - Profile's Unit Trusts & Collective Investments - March 2026

Chapter 3 Costs and pricing

one fund manager to another. A potential disadvantage is the temptation to switch from one fund
manager to another when performance is below par.
Many financial advisers are partnering with discretionary fund managers (DFMs) who select and
blend investment portfolios for their clients. DFMs also charge investors a fee when they manage
portfolios on investment platforms for clients. Alternatively, they create their own multi-managed
unit trusts and their fees are included in the ongoing fees on these funds.
Investing through a platform often changes the way fees are applied somewhat. The main
implications are:
R Underlying fund fees may be less
R An additional layer of costs will be imposed by the LISP and the DFM
As we will cover later in this chapter, funds often have multiple unit classes with different fee
structures. The unit classes made available to bulk buyers, like LISPs, typically have lower fees
(and lower TERs) than retail classes. This means that the investment performance of a fund bought
through a LISP, if platform fees are ignored, will be slightly better than the performance of the same
fund’s retail class. However, the net performance of an investment via a platform may be less
attractive after paying the LISP fees.
It’s important to note that performance tables (including rates of return) published by stats
providers, like ProfileData, do not factor in platform fees. Generally the fund performance figures
available on LISP websites are also, ironically, shown before the impact of LISP costs (ie, returns to
the LISP client are lower than shown).
Similarly, the fee information shown for underlying funds on a platform website (such as TERs and
TICs) pertains to each fund and does not include the LISP fees that will be levied over and above the
fund fees. The costs reported by a platform under the EAC model should, however, capture both the
underlying fund costs and the costs of the platform itself.
As we saw earlier, the annual fees of a fund manager are deducted from the portfolio, which means
the NAV unit price is net of manager fees. But a LISP’s ongoing fees are deducted from the client’s
LISP account. To cover their fees, LISPs will sell units of funds in the client’s portfolio if there is no
cash in the client’s account.

Unit classes
Collective investment schemes can have different classes of participatory interests with different
pricing. These classes are usually known as A, R, B and C classes, although a fund is not restricted
to these classes, and can create others.
Different classes of units arise where a manager wants to apply different charges to different types
of investors in the same fund.
Institutional and clean classes
B and C unit classes (amongst other letters) are generally based on fee structures applicable to
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 class) may charge an investment platform only 0.69% via a B unit class.
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

Knowing your ABCs
Historically, unit classes have followed tacit rules: A for retail funds, B and C for institutional
funds, and so on. It’s important to note that these “rules”are not an industry requirement
– managers can in fact use any letters or numbers to differentiate unit classes. (The only
exception is R, which denotes a regulated class and identifies fund classes established before June
1998.) Exercise caution, therefore, before drawing conclusions about retail and institutional classes
based on alpha codes.

60 Profile’s Unit Trusts & Collective Investments March 2026