Out-Law News 2 min. read
21 Sep 2012, 1:49 pm
The Investment Management Association (IMA) said that fund managers should also explain the breakdown of any "ongoing charges" that are associated with the operation of the fund, even though EU rules only require this to be stated as a "single figure" in the form of a "percentage" of the fund's net asset value every six months. Fund managers are required to provide investors with details of all fund charges in a standard form called the 'key investor information document' (KIID).
"IMA recommends the ... explanation of the purpose of any entry charge," the trade association said. "In respect of dual-priced funds, this should include a statement that the entry charge is included in the offer price and forms part of the bid/offer spread. Managers should also consider including an example to illustrate the effect of the entry charge."
"IMA [also] recommends the ... explanation of the purpose of any exit charge. Where appropriate, this disclosure should illustrate how the investor's holding period affects the charge," it added.
"IMA recommends disclosing the ongoing charges figure instead of the annual management fee because it gives investors the most complete picture of the charges deducted from the fund and is consistent with the KIID. However, wherever the annual management charge is given in marketing material, factsheets and so on, the ongoing charges figure should be presented with at least equal prominence," the trade association's guidance said.
Investors should also be informed of whether the particular funds they choose have an associated "performance fee", IMA said. It added that fund managers should also detail the previous year's performance fee figure "alongside the ongoing charges figure". Investors should also be given information on the "conditions" that may arise that would trigger the levying of a performance fee, and be given access to more "detailed information on how it is calculated" if they want to learn more.
The IMA said that its recommendations were relevant to all funds, regardless of the "pricing mechanism" used by fund managers. It said its advice was "designed to ensure comparability between funds". The recommendations were contained in new guidance (6-page / 70KB PDF) the IMA issued on 'enhanced disclosure of fund charges and costs'.
"In common with other types of investors in financial markets, funds incur costs as a necessary part of buying and selling underlying investments in order to achieve the investment objective," the IMA said. "These transaction costs affect a fund's investors in different ways depending on whether they are joining, leaving or continuing with their investment in the fund. We recommend that these enhanced disclosures be made readily accessible to investors, for example via clearly signposted sections of members' websites," the industry body added.
IMA said that it would publicise on its website which of its members comply with its guidance.