AMcs could eat away at investor's profits if not properly handled
Offshore investors could be losing thousands in extra costs if life companies fail to offer rebates on annual management charges (AMC), Clerical Medical has claimed.
Rod Macdonald, marketing manager at Clerical Medical International (CMI), said by not negotiating rebates on initial charges and AMCs on funds, investors could be faced with a hefty bill, which could affect the performance of a fund.
He said: "Companies need to be transparent and clients must know if they are being treated fairly or not."
For example, if an initial charge of 5% is discounted to 0.25% on a £200,000 investment, total fees would amount to £500 compared to £10,000 if the rate was 5%.
"If the AMC is rebated on the funds within the portfolio, further reductions can also be made," according to Macdonald.
He said if an AMC on a fund was 1.26%, but 0.75% of this was rebated, an initial investment worth £250,000 with a projected growth rate of 5% over 10 years, would be worth £341,000, compared to £324,000 if the fees were not rebated.
However, Kevin Tooze, director at IFA group Equal Partners, said these figures were irrelevant and life companies were placing too much importance on fees. He said: "We are a little concerned about how much importance some people are placing on costs and whether these are being rebated. Most people realise they get what they pay for, and this is the same for investments. Although investors should be aware of charges it is essential not to be misled by them as it is really down to the product itself and how much performance the manager can deliver."
He also stressed while a fund may rebate initial charges to clients, hefty exit penalties may be imposed as a replacement.
Standard Life International (SLI) also believed it was important to be transparent about charges but urged investors to err on the side of caution even if fees were rebated.
Murray Drummond, chief executive of SLI, said: "Charges on fund products are normally negotiated with the fund management group, which are normally lower than the overall headline rate.
"What is important for an investor to consider is the overall charges on the product and how they might impact performance. While an AMC might be rebated, there could be charges elsewhere in the product which might make it more expensive."
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