Page 69 - Profile's Unit Trusts and Collective Investments 2021 issue 2

Costs and Pricing

RiY, as a future estimate rather than an historical calculation, is fraught with problems and can
be misleading. Firstly, the projected annual return, which is an unknown, impacts the RiY
inversely (ie, RiY rises with returns where annual fees are a percentage of investment value). So
conservative projections actually understate RiY. Secondly, because it includes upfront costs (like
commissions), it is sensitive to the time period – the RiY on a product held for 10 years will be
lower than the RiY over 5 years, all other things being equal. Hence assurers can play down RiY by
using long time-period projections. Thirdly, RiY does not take into account penalties that may be
levied if contractual contributions are reduced or stopped (and, historically, a minority of policies
go the distance). These and other factors mean that RiY is a highly inexact method of estimating
costs to the investor.
Retirement Savings Cost Disclosure (RSC)
The RSC, effective from March 2019, is designed to assist potential and existing employers
and/or boards of trustees (referred to as “clients” in the ASISA standard) when comparing
retirement fund quotations.
The RSC differs from the EAC because the latter is aimed at individuals. The RSC is aimed at
employers and trustees, it is not a member level cost disclosure standard and is not designed for
individual fund members.
For products that combine life cover and investment plans, the RSC applies to the savings
element only.
The RSC Disclosure Standard does not apply to RA funds (including group RA funds),
preservation funds, beneficiary funds, compulsory annuities and other retail products provided
that they are included in the EAC.
The template must show four separate components into which defined charges are allocated
over four investment periods:
investment management charges
advice charges
administration charges
other charges including regulatory, compliance and governance costs
The RSC is calculated separately for each of the four components and then totalled to derive the
RSC for the umbrella fund as a whole. The value for each of the components, as well as the total
RSC, is expressed as a percentage of the investment amount.
Chart 3.5

Illustrative total Retirement Savings Costs (RSC) as a percentage of assets
Charges 1 Year 1 to 3 Yrs 1 to 5 Yrs 1 to 10 Yrs
1.20% 1.20% 1.20% 1.20%
Investment Management
0.50% 0.50% 0.50% 0.50%
Advice
0.95% 0.95% 0.95% 0.95%
Administration
0.30% 0.30% 0.30% 0.00%
Other
Total RSC 2.95% 2.95% 2.95% 2.65%
Fund Fees and Platform Fees
As mentioned earlier, the fees covered thus far have been described from the point of view of a
single fund and relate to purchases made directly from the fund managers (either online or with
the help of a financial advisor).
In practise, many investors buy into unit trusts via LISPs or investment platforms (sometimes
referred to as unit trust supermarkets). Advantages of investing via a platform include access to a
much wider range of funds (compared to one management company) and ease of switching from
one fund manager to another. A potential disadvantage is the temptation to switch from one fund
manager to another when performance is below par.

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Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts