Investment houses will have to state the profits they make from reinvesting income on funds, if Auti...
Investment houses will have to state the profits they make from reinvesting income on funds, if Autif's latest plans on single pricing are implemented, according to a report in Investment Week.
Under the proposed regime, which Autif hopes would come into force before the end of the year, investors would see on their contract notes the actual cost of buying units in a fund and separately, any additional fees charged by the group. This would then also apply to reinvestment of income.
At the moment Jupiter, for example, charges the full bid/offer spread of 5% for the reinvestment of income. In the £1.6bn Jupiter Income Trust, more than half of its investors opt to reinvest. Oeics are also able to charge for reinvestment. For example Threadneedle charges some 1.75% for reinvestment for income but notes it offers accumulation shares on most of its funds.
Under the single price regime proposed by Autif, the units or shares would be priced at the middle value of the assets, mid-market price, but managers have the discretion to add dealing costs for purchases or redemptions. Dilution levies would be scrapped.
Bob Hale, a consultant for Autif, said: "This swing will narrow the current bid/offer spread on unit trusts and will limit groups to the maximum dealing costs plus stamp duty reserve tax."
Competition has driven down dealing costs substantially over the past few years and would unlikely add more than 0.75% for purchases or 0.25% for redemptions to the price.
Accumulation units increase the value of the units whereas under income units, more units are created and the investor is charged for their creation. Mark Dampier, investment director at Hargreaves Lansdown, said: "This is sure to put pressure on groups to reduce what they charge for reinvestment, when it is clear how much is spent on the actual dealing costs."
Autif is consulting its members on the new single price regime. Under this the price of funds would have to be set each day and could not be altered.
It will be up to the FSA as to whether or not Autif's proposals are written into regulations. By consulting its members now and creating a workable solution, Autif is hoping to get single pricing enacted at the same time as N2, which is expected to be by November.
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected