2. 2 Performance Active fund managers try to time the market and pick shares so that they can achieve a better rate of return (given the risk they take) than the All Ordinaries index. Higher fees in return for possibly higher returns! Expect All Ordinaries + 0.5% at the most Passive fund managers just try to copy the All Ordinaries index. Very low fees in return for average returns Expect All Ordinaries less 0.25% guaranteed
3. 3 Entry and exit fees Entry fees Normally up to 4% Paid to financial adviser who sold you the product as a commission. Commsec waives most of these entry fees. Exit fees Usually only if you choose a “no entry” fee option. The entry fee is usually loaded on top of the admin fee for the first five years if you choose “no entry fee”.
4. 4 Buy-sell spread There is also a different unit price for “buying” versus “selling” units. Buy unit price is higher than sell unit price This is supposed to reflect transaction costs and admin costs associated with your transaction. Ranges from 0.3% to 1.0% This is a big cost for buying then selling $100,000 Moral … beware of “switching costs” … pick a fund and stick to it. Also note that capital gains are realised when you sell units in a fund which may have tax implications!
5. 5 Administration fees Called the Management Expense Ratio (MER) Normally between 1.4%-2.0% per year About 0.5% paid to adviser as ongoing commission About 0.3% paid to adviser’s head office The rest is kept by fund manager
6. 6 If you have a lot of money Wholesale managed funds have MERs of 1% but you need $100,000 to invest. Master trusts and Wrap accounts let you invest in lots of managed funds in the one administration system (convenient). BUT: Pay adviser fee of 0.4% Pay admin fee of about 0.6% Pay wholesale MER of about 1.0% Total of 2.0% per year may be higher than just investing directly in retail.
