How much will it cost you to invest?

How much will it cost you to invest?

By Nedgroup Investments, 10 Oct 2016

The Effective Annual Cost (EAC) measure was developed by the Association for Savings and Investment SA (“ASISA”) to assist investors and advisors to compare charges on most retail investment products. It further entrenches the delivery of fair treatment by product providers to consumers.

EAC is a standardised disclosure methodology that measures the charges a consumer will likely incur in purchasing and holding a financial product, and does not measure the features of a financial product. Previously, different disclosure methodologies were used by the financial services industry to disclose costs relating to financial products, i.e. a CIS company discloses total investment charges (the total expense ratio and underlying transaction costs), which is typically a retrospective measure, whilst Life companies use the reduction in yield methodology, which is more forward looking. The EAC therefore introduces a uniform disclosure methodology which enables investors and advisors to compare apples with apples and level the playing fields for a more transparent approach to cost disclosure.

ASISA members are required to provide for this disclosure methodology by 1 October 2016 as part of phase 1 implementation.

The EAC methodology applies to product providers of collective investment schemes (CIS), contracts issued under a Linked Investment Services Provider license, insurance contracts, (other than pure risk-based insurance contracts and compulsory and voluntary purchase guaranteed non-profit Life Annuities) and products wrapped in a life wrapper, and memberships of retirement annuity funds and preservation funds.

EAC categorises charges into four separate components of the investor journey and assumes that the investor exits the investment at the end of a particular time period. The four components are then added together to get the EAC for the financial product as a whole.

The four components are broken into:

• investment management charges;

• advice charges;

• administration charges; and

• other charges.

Nedgroup Investments has created an EAC calculator to assist investors and advisors to compare charges of our CIS funds with other types of financial products. You can find our EAC calculator on our website (click on ‘Forms’ and ‘Start investing’ tabs).

You have been subscribed to our newsletter