WEALTH WATCH
STEPHEN CRANSTON: New gauge for investment fees
Effective annual costs standard makes it easier for clients to compare variety of products
Yet until the beginning of this month there was no consistent way of measuring investment products across licences. Unit trusts and life offices, for example, had their own different measures. In the case of unit trusts, it was called total expense ratio (TER). This has never been "total" as it has always excluded trading costs, which can be a major expense. TER is also backward looking, which has the advantage that it incorporates the real costs over the past 12 months and is not a projection. The trouble is that it cannot be directly compared to reduction in yield (RIY), which is used by the life offices. Actuaries have always fancied themselves as clairvoyants and wouldn’t stoop to calculating the past year’s costs — that’s bookkeepers’ work. RIY tries to project costs looking through the term of the life policy, and unlike TER it can include advice fees and initial fees. But the Association for Savings & Investment SA (Asisa) wanted to give investors an idea of what they can be ...
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