“These measured expenses include asset management and administration fees, custody costs, trustee fees, audit fees, bank charges, taxes, interest rate charges, costs of buying and selling units from investors and scrip [securities] lending costs,” he writes in a published statement.
l Brokerage costs: “Where a CIS manager actively ‘churns’ the assets in a portfolio in an attempt to generate outperformance of a benchmark, these brokerage charges can be substantial,” says Brown. It’s less of an issue in the case of ETFs, which usually include such costs in the TER because they’re generally only incurred when the scheme changes its portfolio.
Because of this, funds have started disclosing transaction costs “which represent the charges the fund incurred for buying into and selling out of positions in the fund,” says Collins. “For example, when a company is kicked out of an index, an ETF that tracks that index will need to sell its holdings. In order to do this the fund needs to pay brokerage costs and so forth. Over the course of the year, the transaction costs are totalled and expressed as a percentage of the total value of the fund.
l Alexander Forbes Investment Unit Trusts Scheme: The cheapest TIC was 0.55% . The most expensive TIC was 2.08% for the Flexible Fund of Funds. “The problem is that in many cases, the unit trust or ETF is held inside of a retirement annuity , or tax-free savings account, or a platform, which then charges fees on top of this,” says Collins. “There may be a platform fee, or a product fee . And then on top of this, a financial adviser may have put you on to the product, and so they also take their commissions.”
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