Read fees fine print in funds

Most analysts are predicting weak returns for managed funds this year and this puts fees in the spotlight. People should have a good grasp of what it’s costing them to invest, says the ASIC’s Malcolm Rodgers.

Of course the investor is expected do his bit by reading prospectuses carefully – but many don’t do so, as the fine print is often too complicated.

The ASIC has just launched a project to encourage fund managers to better disclose fees and charges on investment products, so that investors can better understand what they are getting and what they are paying for it.

Examples of fees which investors often don’t understand are trailing fees and management expense ratios (MER). A trailing fee is taken by the adviser who sells you a product; he takes a part of your savings every year you’re in the fund, supposedly for monitoring the investment.

An average trailing fee for an Australian equity fund is about 0.44 per cent, equating to $440 a year on a $100,000 investment.
The main fee that investors pay, however, is the MER. This is an annual fee charged by the manager, often at around 1.8 per cent. The trailing fee is part of this.

You should be aware how the MER is split between the manager and the adviser. MERs vary between different funds: equities funds usually charge more than fixed interest funds, for example.

It’s not all bad news, however. Funds management is a highly competitive industry and fees have fallen over the past 10 years.
The bottom line is: read the fine print before signing up, understand the structure – and ask your adviser what fees are involved.