Our challenges are that:
- True costs are not disclosed
- Subtle charges are not disclosed
- Strange terms such as TER or RiY are used
During one of our radio shows, a listener phoned in and asked about an investment that they were considering. With our industry knowledge, we were able to determine the capital amount, as well as the fact that the commission would amount to R360 000. Furthermore, we knew that the same investment could be achieved on a cheaper platform, and that the saving would be R240 000.
When considering investments, there exists a grey area of uncertainty; not due to the fact that the collective investment scheme industry does not disclose the costs of the products, but the manner in which they present figures so that consumers are unable to compare them to competitor products.
The government and regulators have finally agreed upon a means as to how the costs of financial products will be identified. A new standardised requirement, a key information document, will allow you to compare the features of different products more easily. Not only will this simplify product choice for you, the consumer, but it will also allow you to identify the most desirable option that best suits your needs.
The Association for Savings & Investment SA (ASISA) has developed a new cost measure called the “effective annual cost” (EAC). This standard ensures that the product provider must disclose any charges (including VAT) with you beforehand. This includes a myriad of previously non-disclosed charges, including; but not limited to; investment-management charges and administration charges, as well as commissions or fees paid to your financial adviser.
With this, it will no longer be possible for investment companies to disclosure incorrect or inaccurate information, and in turn, will it be not be possible to take advantage of the investor.
With the new regulations set into motion, you will now be able to compare the costs of life assurance products with those of collective investment scheme products. Thus, consumers will be provided with a cost figure that will be more comprehensive than either of the other two measures, making the decision making process considerably easier.
Furthermore, all existing products will also have to be brought into line with the EAC standard when there is change to the contractual terms of the product. The deadlines for compliance for existing products are:
- June 1, 2017 for products sold after April 1, 2010;
- June 1, 2018 for products sold after April 1, 2000 and before April 1, 2010; and
- June 1, 2019 for products sold before April 1, 2000.