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How do managed fund fees work?   By Michael Chou Investment Manager

When investing in managed funds, it is important to understand the range of fees and costs that are charged by the investment manager, as even a small difference in fees can have a large impact on the final investment outcome. Investment management service providers typically fall under two types of operating model. The first is Co-Mingled Funds, which are pre-built multi-manager funds. These pool funds from multiple investors into a single portfolio to purchase a broad variety of assets. Fees are bundled into an all-in headline fee that reflects the total annual cost to the investor. This approach makes understanding upfront and ongoing costs simpler. The second approach is a Delegation Model, which is generally used by wealth and platform managers.  These types of funds may include a range of fees, such as: Management fees: cover the manager’s services, legal fees and operational costs. Transactional costs: entry, exit or switching fees, which are usually triggered when you add or withdraw money. Portfolio administration fees: cover daily operational and account-keeping costs. Performance fees: a bonus fee charged by active managers if they exceed an agreed-upon market benchmark or specific return target. Account/ adviser fees: the cost of paying a professional adviser to select, manage and provide advice on your fund investments. Fees charged by the underlying managers. As a result, managed fund fees can differ significantly from one fund to another – and given the long term effect on performance, it is really important that an investor has a good understanding of the portfolio fees that apply to their investment.  It can often be difficult to compare different fee structures and, without the complete picture, there is a risk of being misled. How fees affect performance The Uniting Financial Services (UFS) range of managed funds use a Co-Mingled approach with an all-in fee structure. This approach was selected to provide predictability around up-front costs and minimise the drag effect fees can have on compound growth. UFS looked at the effect of fee differences on annual costs and investment outcomes of a portfolio of $500,000. Currently, the UFS Ethical Conservative Balance Fund (ECBF) charges a flat fee of 0.85% per annum, with no additional fees and charges. We modelled this against a wealth manager that charges advisory and portfolio management fees, portfolio administration fees and an ongoing fee for the underlying managers, with total fees at 2.62%. At the end of a five-year time horizon and assuming a 6% annual return, the client has paid a total of $25,395 for the ECBF, versus $78,127 for the second fund. This represents a difference of $52,732 to the final investment balance – over 10% of the initial investment amount. In a second scenario, we modelled the same criteria but for a client with $5 million invested. As the following table shows, this resulted in total fees of $253,951 for ECBF versus fees of $650,918 for the wealth manager, a difference of $369,967 to the final investment outcome. How to check managed fund fees As these examples show, a reasonably small difference in fees can result in a very different balance when you come to withdraw your investment. It is therefore important to understand the total fees involved before investing. The best starting point is usually the fund’s Product Disclosure Statement or Information Memorandum. By law your fund must describe the fees it charges in an easy-to-read statement in the key features table. You will also receive regular member statements showing your rate of return, which should be the figure left after the manager has charged their fees. If your rate of returns seems low, you might be paying too much in fees. If you are thinking of investing in a fund, ASIC’s Moneysmart website also offers a helpful calculator to help you work out the compounding effect of fees on your expected return. Visit https://moneysmart.gov.au/managed-funds-and-etfs/managed-funds-fee-calculator for more information.     Important information: The Uniting Financial Services (UFS) unregistered managed investment schemes are available for investment only to wholesale investors. Prospective wholesale investors who wish to invest via our unregistered managed investment schemes can access the Information Memoranda for these any of these funds on the UFS website. While the information in this email has been prepared with all reasonable care, UFS accepts no responsibility or liability for any errors, omissions or misstatements however caused. No action has been taken to register or qualify these products or otherwise permit a public offering of these products in any jurisdiction outside Australia. Past performance is not indicative of future performance.    

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  Important for you to know Financial services are provided by The Uniting Church (NSW) Trust Association Limited ACN 000 022 480, ABN 89 725 654 978, AFSL 292186 (“UCTAL”) and by The Uniting Church in Australia Property Trust (NSW) ABN 77 005 284 605 (“UCAPT”) (together and separately “Uniting Financial Services”), for The Uniting Church in Australia, Synod of NSW and the ACT (“Synod”), under a s.911A Corporations Act 2001 (Cth.) authorisation and pursuant to APRA Banking Exemption No. 1 of 2021 and ASIC Regulatory Guide 87 and ASIC Corporations (Charitable Investment Fundraising) Instrument 2016/813 exemptions. Uniting Financial Services® is a registered trademark of UCTAL used with permission of UCAPT. None of The Uniting Church in Australia, UCAPT and UCTAL is prudentially supervised by APRA. Therefore, investments with or contributions to these Uniting Church organisations will not receive the benefit of the Financial Claims Scheme or the depositor protection provisions in the Banking Act 1959 (Cth.). All financial services and products are designed for investors who wish to promote the religious and charitable purposes of Uniting Financial Services and The Uniting Church in Australia and for whom profit considerations are not of primary importance in their decision to invest. The information on this page has been prepared without considering your objectives, financial situation or needs. You should, before acting on it, consider its appropriateness to your circumstances or refer to the relevant disclosure document. Loan applications are subject to credit approval. Interest rates are subject to change. Fees and charges may apply. 

Kindly note that the information on this webpage is only intended for wholesale, professional or sophisticated investors (as defined in the Corporations Act). Please do not refer to this webpage if you are not one of these investors. Uniting Financial Services is not providing any personal advice or recommendation regarding any financial products described or referred to on this webpage. Prospective investors should make their own enquiries and should seek all necessary financial, legal, tax and investment advice. Past performance is not indicative of future performance, all information contained on this wepbage is current at the date of publication, however may be subjected to change without notice.