The International Organisation of Securities Commissions (Iosco) has called for all national regulat...
The International Organisation of Securities Commissions (Iosco) has called for all national regulators to force fund managers to collate and disclose total expense ratios (Ters) in a standardised fee table, allowing a global comparison of charges.
The move has been announced in a consultation paper, in which Iosco sets out best practice for calculating the TER.
The organisation pointed out that "fees and expenses have long been a concern for regulators" and investors should not rely solely on past performance to make an investment decision.
Iosco admits the bear market has increased investors and regulators" attention on TERs.
Although the paper cannot impose an obligation on any of its 171 members, by reflecting best practice peer pressure is expected to lead to changes and standardisation. The organisation is allowing until 30 May 2004 for responses to the paper.
Fees and expenses are those paid by investors out of their investment or borne by the fund and deducted from assets.
AFTER covers four areas: management fees; distribution costs; other operating expenses, such as custody, audit and administration; and transaction costs in changing the portfolio.
As well as providing historical information, the Iosco fee table might also include anticipated expenses, although it admits the information on transaction costs might be incomplete.
As well as trying to identify conflicts of interests in running a fund, such as soft or hard commissions from brokers, the Iosco paper wants regulators to stamp out practices that mean a performance fee creates incentives for the manager to take excessive risks - such as whether the management fee is set too low.
In a seperate development, Fitzrovia International, a TER consultancy, said actively managed, mainstream equity retail funds had a higher TER offshore than in the UK.
As at January, the straight mean average TER in a UK fund was 1.66% compared with 2.16% offshore. This higher cost was despite the management charge onshore being six basis points higher than offshore, at 1.38%.
Ed Moisson, communications director at Fitzrovia, said: "Iosco"s paper for a clear and accessible TER table would raise awareness among investors if charges are too high [and pressure to reduce them]. Transparency is good for fund management companies, investors and IFAs."
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