The Association of Investment Companies is going to stop publishing total expense ratios on its website and recommends its members use a different methodology for their own acounts.
From May 31, the trade body will replace TERs with an ’ongoing charges’ figure, which will be created Morningstar on the basis of a new AIC methodology.
The association also says its members should adopt the new methodology when calculating the ongoing charges figures for their accounts, factsheets and websites.
The AIC’s recommended methodology excludes performance fees from ongoing charges, which is consistent with European regulations on the ongoing charges figure for use in Key Investor Information Documents and mirroring the approach used by Ucits funds.
In order to address concerns that excluding performance fees could be seen as total costs of fund management, the group recommends its members also publish total costs of fund management, a separate percentage figure for the performance fee and a total showing ongoing charges plus the performance fee.
AIC director general Ian Sayers says using a common approach for the calculation of ongoing charges will reduce in inconsistencies and aid comparability across individual trusts and between investment companies and open-ended funds.
“We are aware of growing calls for a total cost of ownership figure to be published which would include ongoing charges, but also the costs of advice, platforms and internal dealing costs,” he says.
“We believe the investment company sector has much to gain from supporting greater transparency in fund costs. The publication of the AIC’s methodology for ongoing charges is a key element in delivering this ultimate goal.”