The EAC comprises four separate components into which various charges are allocated. The components are:
- investment management charges (IMC);
- advice charges;
- administration charges; and
- other charges.
The EAC is calculated separately for each of the four components in isolation and then summed to derive the EAC for the Financial Product as a whole. The value of each of the components, as well as the total EAC will be displayed in a table at four mandatory periods (1, 3, 5 and 10 years or term to maturity). It assumes that the client will disinvest at the end of these respective periods.
Charges which can be expressed as an ongoing percentage of the investment value are simply added together. Charges which cannot be expressed as an ongoing percentage are amortised over the relevant period and disclosed accordingly. The calculation takes account of the type and timing of the investment (lump sum or debit order) and whether there are any initial or ongoing fees applicable, as well as costs incurred in the administration and management of the product. This may entail forecasting the growth of your investment at a predefined rate, but note this does not mean your investment will necessarily grow at this rate.