Collective investment schemes will be required to publish the reduction in yield as well as the total expense ratio of any unit trust or OEIC investment, under final rules for the simplified prospectus.
The Financial Services Authority (FSA) says under the simplified prospectus rules, all collective investment schemes, such as unit trusts and OEICs, and which carry a Ucits certificate allowing funds to be marketed in other EU countries will be required to publish several pieces of vital information in a ‘Q&A’ format, including the charging structure of such investments.
Expanding the key feature document concept, the FSA says under the terms of the Ucits III Directive, the simplified prospectus’ will have to carry a total expense ratio (TER) figure, however, this will not include front-end, exit or dealing charges.
A portfolio turnover rate (PTR) will have to be included to show the volume of dealing conducted within the fund, says the FSA, and the company will be required to show the historic performance of each Ucits fund for up to 10 years.
Information required in the prospectus will be reviewed in 2008 and a ‘sunset clause’ has been added to rules which could see the inclusion of a reduction in yield removed in 2009 if it is found to be of no use to consumers.
Use of an RIY can be excluded, however, on the marketing of funds sold across Europe, says the FSA, as it was argued they would make UK funds appear more expensive.
While this increased FSA flexibility over requirements – compared with earlier proposals – has been welcomed in part by trade bodies, moves to include both a TER and reduction in yield (RIY) have disappointed officials at the Investment Management Association who lobbied hard for their removal.
Richard Saunders, chief executive of the IMA, says having both the TER and RIY in documents is likely to do nothing to help investors understand the charges they face when investing in collective investment schemes.
“The TER is the international standard for disclosing the cost of investing and we believe it is the simplest and clearest for consumers. RIY is much harder to understand and explain, and its continued use in addition can only serve to confuse – as well as gold-plating the European Directive,” says Saunders.
“The promise of a ‘sunset’ clause and a review in three years is therefore to be welcomed, but we would have preferred to see RIYs, which require an arbitrary assumption about future rates of return, dropped altogether. We look forward to working further with the FSA on these questions.”
Dan Waters, FSA director of Retail Policy and Asset Management Sector Leader, says the RIY is still being included as the FSA’s own research suggests it is helpful to consumers.
"We have decided to retain the reduction in yield figure, currently used in key features documents (KFDs), for the simplified prospectus for funds marketed to UK customers. Recent market research we conducted shows that consumers find RIY particularly helpful. However, the RIY figure will not need to be included in Simplified Prospectuses for funds marketed cross-border to other countries in the European Economic Area. This should allay concerns UK firms may have in terms of European competitiveness," says Waters.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Julie Henderson on 020 7968 4571 or email [email protected].IFAonline
Joined as head of strategy, multi asset, in June
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