What fees are you paying on your unit trusts?

By Staff Writer
There are three different charges which investors may incur when buying unit trusts/collective investment schemes.

If the investments are purchased directly from the manager there are two fees payable:

  • An entry fee: variously called "initial charges" or "transaction fee", which is a once off fee when the units are first purchased.
  • An annual fee: also called a "manager's fee" or "service fee", which is charged annually as a percentage of the value of the investment and is paid by the fund from its portfolio rather than charged individually against the client's account. This charge then has the effect of reducing the price of the portfolio and is normally accrued every day. These fees can be a flat fee or a fee dependent upon the performance of the portfolio. The extent of this latter fee, sometimes called a performance fee, is not immediately obvious and would only be quantified by reference to the marketing material of the fund or the fund's TER (total expense ratio). This can result in an investor not realising the full extent of the fees being paid.

In addition to these two, charges can be levied by an intermediary, if the investment is not purchased directly from the manager. These also take the form of entry fees and annual fees. Sometimes these are not part of the pricing of the product and hence the client would notice payment of these fees either from their capital or the income earned from the investment.

On top of this, financial advisors can also levy fees. There is a small move in South Africa for financial advisors to charge fees based on a visit or per hour basis, and to move away from those levied as a percentage of the asset size. This has the effect of the client being charged based on effort rather than a standard fee which is charged whether the financial advisor continues to offer service to the client or not.

Investors are becoming more mindful of charges for various financial services products, but they may not be aware of the fees being charged as they are built into the products. The fees get paid by the initial investment amount as opposed to being paid by another payment from the investor.

Some collective investment schemes pay annual fees from the income account of the product. This can be applied to fees levied either by the asset manager or the financial advisor and has the effect of reducing that income and thus the yield in the product.

Mike says that his top tips for investors to assess the fees they pay on financial products would be:

  • Read the small print
  • Reconcile the amount you have invested with what it is worth now, taking into account roughly what markets have done. Any large negative variance may well be the effects of hidden charges.
  • Get your financial advisor to commit to writing the total charges related to the product.

Recent Articles

Featured Rating agencies may come knocking

It is only the middle of February, but the rand has already made two big moves. The first was the rand moving from R14.60 to R 13.20 at the beginning of the year, as emerging markets (EM) became fashionable again. The second was where the rand gave away nearly 90 cents in 2 weeks as the EM rally ran out of steam, and local events started to hit the headlines.

Read more

The cost of sending money home to neighbouring countries

Transferring money home within the Southern African Development Community (SADC) provides vital financial support for many households in neighbouring countries.

Read more

Student bank accounts: Which come out on top?

Being a student signals budgeting and not having a lot of money at your disposal. This means streamlining expenses such as your grocery costs and entertainment budget. But what if your bank account is in fact costing you more than you can afford?

Read more

Can you afford an ambulance in South Africa?

When a loved one is straddling the line between life and death, you won’t hesitate to call an ambulance. This week, Justmoney found out how much an ambulance ride costs in South Africa, whether you can refuse to get into an ambulance, and who pays the bill if you’re unconscious. 

Read more

Sign Up

To our weekly newsletter for advice you can bank on

Deals

President Hotel Easter Special

Price: From R1,500
When: 15 March to 30 April
Where: Cape Town

Kulula-Preskil Island Resort Special

Price: R16,999
When: 11 May -14 September
Where: Mauritius

A Touch Of Madness Tuck In Tuesday Special

Price: R70
When: Tuesdays
Where: Cape Town