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AIC to replace TERs with ongoing charging data

The Association of Investment Companies has recommended that its members stop using total expense ratios in their accounts in favour of ongoing charges in a bid to offer a fair comparison between open and closed-ended funds after the retail distribution review.

The trade body is no longer publishing TERs on its website, replacing them with the ongoing charges feature, which will be calculated by Morningstar using a new AIC methodology. It will take into account European rules that require investment companies to produce key investor information documents.

The methodology mirrors that currently employed by open-ended funds, allowing a fairer comparison of the two. Investment trusts have been widely tipped to take a greater market share after the RDR as many advisory firms have traditionally steered clear of them due to their lack of commission.

The AIC recommends the exclusion of performance fees from these ongoing charges, which it says is in line with the approach taken by Ucits funds and European regulation governing the calculation of charging figures for publication in key information documents.

The trade body is calling for its members to separately disclose how the performance fee is calculated, the performance fee as a percentage and a total figure showing the ongoing charges plus the performance fee.

AIC director general Ian Sayer says: “Having one single methodology for calculating ongoing charges will help to reduce inconsistencies and aid comparability for investors and advisers.” founder Justin Modray says: “Removing performance fees from published investment trust total annual charge figures will bring them into line with unit trusts. This is especially important for the investment trust industry in light of the RDR.”


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Certification guide

Guide: how to… certify your pension scheme

Certification is highly complex and surrounded by a minefield of information and auto-enrolment jargon, which can make it very difficult to understand. However, for many employers it is a necessary process that must be executed successfully.


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