The FSA is adding yet another method of fund pricing in an attempt to make charges more easily under...
The FSA is adding yet another method of fund pricing in an attempt to make charges more easily understood by consumers.
Under the FSA's proposed single pricing scheme, issued last week, managers will now be able to swing the price of an Oeic. This will mean the price of the shares can include the mid-market value of the underlying assets in a fund, adjusted to take into account any transaction costs, which usually arise when an investor enters or leaves a fund and causes the manager to buy or sell assets to compensate, include broker commissions, market spreads and fiscal duties. Typically these amount to some 100 basis points, according to research by the FSA.
At the moment, groups can have a single price on an Oeic, which is the mid-market value of the assets. However, a dilution levy can be applied as a separate charge to either an individual investor, if it is a large deal, or to all deals in the fund as a blanket dilution levy.
Under the FSA's proposed scheme, managers can continue to use either of these methods or use a swinging Oeic, which enables the dilution levy to be included in the actual price of the shares and therefore presented as a single price.
Going forward, groups can use either the existing or the proposed regime as the FSA intends to let this system bed down for more than 12 months before re-examining it to determine whether single pricing should be made mandatory.
The FSA's proposals are unlikely to affect the way in which unit trust pricing is structured, according to the IMA.
As part of the FSA's proposals, groups will then have to be more explicit in key features documents (KFDs) as to what pricing methodology is used, the costs involved and how these will impact on the end investor.
At the moment the regulator does not feel that this is made overly clear in the disclosure included in KFDs.
At the same time, included in the single pricing document, the FSA refers to Oeics as investment companies with variable capital (ICVC).
In FSA documentation Oeics no longer exist, as it attempts to align UK fund terminology with that of Europe and believes 'ICVC' is a better translation of the European 'Sicav' than 'Oeic'.
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