Saving and investment products to be comparable

By Jessica Anne Wood

With effect from 1 June 2016 investors will be able to carry out cost comparisons across investment products. This is a result of the Association for Savings and Investment South Africa (ASISA) adopting the ASISA Standard on Effective Annual Cost (EAC).

Michael Summerton, convenor of the ASISA EAC Working Group, noted: “Given the challenges presented by the product and disclosure diversity, we are exceptionally proud that we now have in place a solid approach to cost disclosure, which carries the approval of our members and is viewed as a positive development by National Treasury and the Financial Services Board (FSB).”

The purpose of the EAC is to allow investors to compare the cost they incur when they invest in different financial products. It is expressed as a percentage of your investment amount.

“The EAC is a cost disclosure measure that is part of the overall investment product disclosure regime. It is not a product comparison tool. Investment decisions should seldom be based solely on cost,” highlighted ASISA.

The EAC Standard

The ASISA Standard released on the EAC revealed: “ASISA members have developed the Effective Annual Cost measure (EAC), a standardized disclosure methodology that can be used by consumers and advisors to compare charges on most retail investment products, and their impact on investment returns, across the various regulatory wrappers so that consumers are placed in a position to make better informed decisions around retail savings and investment product choices.”

In order to calculate the EAC Standard, product providers are required to disclose four separate components of charges. These are: investment management charges, advice charges, administration charges, and other charges (VAT is also included in the calculation).

ASISA explained that “the EAC must be calculated separately for each of the four components and then totalled to provide one EAC figure for the financial product, expressed as a percentage.”

Where a charge is not available for a component of a product, ASISA emphasised that this must be clearly explained in the EAC.

It is important to note that the EAC is a cost comparison only, and does not provide any information or insight into the differences in the product features.

The implementation of the EAC

Product suppliers will have to provide the EAC for products on the market from 1 June 2016. However, products sold after 1 April 2010, but are closed to new customers, will need to have an EAC by 1 June 2017, and products after 1 April 2000 and April 2010 will need an EAC by 1 June 2018. Products sold before 1 April 2000 will need to be compliant with the EAC Standard by 1 June 2019.
 
To read more about the ASISA Standard on EAC, click here.

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