Page 190 - Profile's Unit Trusts and Collective Investments 2021 issue 2

Fact Sheet Tips

different investors in the same fund. Some management companies (CIS managers) now have many
tiers of charges, such as Class A, B, C and R charges. What follows is an explanation of these tiers and
how they affect this book.
Deregulation of charges was 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, and such approval was not
going to be readily forthcoming. So one pressure point for more change was to allow existing funds to
also vary their charges. Another was that unit trusts were, under the old system, 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 existing investors, management companies may still not increase the fees of those unitholders
already invested. So an existing fund that wants to increase fees has to have two structures: it has to
preserve the old structure as Class R fees, and then introduce a new scale (Class A) to apply to new
investors. All of these changes can apply to both initial charges and annual fees.

CLASS R CHARGES
These charges apply to funds in existence before June 1998, and to unitholders invested prior to
1 April 2000. 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. 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 (R Class).

CLASS A CHARGES
These charges are applicable to all new investments into funds with Class A charges. Not all funds will
necessarily have both Class A and Class R fees.

CLASS B AND C CHARGES
These are the fee structures which generally apply to institutions or other “wholesale” clients. CIS
managers are reluctant to publish these fee structures.
Buy and Sell Prices
The implementation of the Collective Investment Schemes Act in 2003 saw the demise of the old
buy and sell prices. However, their legacy lives on when it comes to performance figures, and we
therefore include some explanation here of how buy and sell prices worked under the old Unit Trusts
Control Act.
Under the Collective Investment Schemes Control Act (CISCA), all transactions between the
investor and the management company must be executed at Net Asset Value. The NAV is more-or-less
equivalent to the old “sell” price (ie, the price at which units were redeemed, also known as the
repurchase price).
Although most CIS managers had sliding scales for initial fees, most price reporting historically only
reflected one buy price and one sell price per fund per day. As a rule, buy prices reflected maximum
initial charges. Until April 2000, sell prices were the same for everybody.
In reality, both buy and sell prices varied depending on the investor. Buy prices varied depending on
the level of initial charges (ie, the buy price on the same day for the same fund was higher for a new
Class A account than for an existing Class R debit order account). Because CIS managers could also
apply different annual fees, the sell price also varied.

Previously, CIS managers recovered their annual fees (usually daily) from the income received by the
fund. The sell (or repurchase) price was calculated after the deduction of the annual fee. The
repurchase price was therefore higher for an institution paying only 0.25% per annum compared to a
private investor paying 1.50% per annum. Under the new CIS Act, annual fees are now a direct charge

188 Profile’s Unit Trusts & Collective Investments — DOMESTIC