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IMA wants industry to adopt TERs

The IMA has called on fund managers, regulators and intermediaries to look at the total costs of a fund rather than the annual management charge.

In a consultation on investment fund structures and safeguards, the IMA has asked members to consider using total expense ratios instead of individual costs laid out in reports and accounts.

It believes that TERs provide investors with a clearer picture of the total annual costs that are involved in running an investment fund.

The TER consists principally of the manager’s annual charge but also includes the costs for other services paid for by the fund such as the fees paid to the trustee, custodian, auditors and registrar.

TERs are usually between 1 per cent and 2 per cent. It is likely that big funds will have lower TERs than small funds, that funds investing in overseas markets have higher TERs than UK funds and that new funds will show higher costs than old funds. However, the principal difference in TERs is whether the fund manager has a higher or lower annual charge.

In its consultation, the IMA has proposed that regulation of UK-authorised funds should be brought up to pension fund standards. It also wants portfolio purchases and sales to be grossed up and segmented to show commission, taxes and other charges.

Chief executive Richard Saunders says: “We are aiming to assure investors that saving through investment funds brings them a structure that lets them see how their money is being put to work.”

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