| Entry Fees |
| Exit Fees |
| Ongoing Fees |
| Ongoing Commissions |
Many fund managers charge entry fees when you initially purchase an investment. The main purpose of entry fees is to pay commission to advisers. Direct Advisers will return all initial commissions back to you by way of additional units in your new investments, thus your entry fees will be negligible.
Some funds do not have entry
fees, but still pay commission to advisers. Such funds will usually have higher
ongoing manager’s fees to compensate for the lack of an entry fee. You should
therefore not regard these funds as cheaper or free as you will still be paying
a higher level of costs if your adviser accepts an initial commission.
Many funds that do not have
entry fees have exit fees instead. Exit fees are implemented to discourage early
cashing in of investments or to ensure that an investor does not take advantage
of the lack of an entry fee.
At present some managed funds
impose ongoing trustee fees. The implementation of the recent Managed
Investments Act will result in a single responsible entity (most likely the
manager) replacing separate managers and trustees. This will mean that trustee
fees will no longer be applicable, however some managers will continue to use a
separate external custodian to hold fund assets, in which case a fee will need to
be paid to the custodian.
Managers charge fees for the
management and administration services that they provide to investors and of
course to make a profit for their businesses. Manager’s fees vary according to
the complexity of the investment management role. For example, managing a
sharemarket fund is more complex than managing a cash management trust and as a
result the sharemarket fund will have a higher ongoing management fee.
Managers are also entitled to
recover certain costs from investors such as promotion expenses, brokerage and
government charges. The total recovered costs, management and custodian fees, is
expressed as a percentage known as the Management Expense Ratio (MER). By
comparing the Management Expense Ratios of different funds it is possible to
determine whether a particular fund is more or less expensive than the average.
We would regard Management Expense Ratios of 2% for retail funds and 2.5% for
master funds as normal. However some funds may have slightly higher or lower
Management Expense Ratio’s.
The costs represented by the
Management Expense Ratio are recovered from the income produced by the
underlying investments held by a fund, prior to income distributions being paid
to investors. In the event of a fund having insufficient income, then some of
the underlying investments may be sold to enable the expenses to be paid.
Ongoing commissions are also
known as trailing or servicing commissions. These commissions are paid to
advisers out of the manager’s fee and are therefore incorporated into the
Management Expense Ratio (MER). Ongoing commissions are usually in the range of
0.25% to 0.4% per annum and are usually paid on a monthly or quarterly basis.
Contact us: enquiries@directadvisers.com.au
