In line with the outcomes of Treating Customers Fairly, the Association of Savings & Investment SA (ASISA) has introduced the Effective Annual Cost (EAC). With its introduction in October 2016, investors (both prospective and existing) and their financial planners will be able to compare charges on most retail investment products, and their impact on investment returns, across the various regulatory wrappers so that investors are placed in a position to make better informed decisions around retail savings and investment product choices.

The standardized disclosure measures the charges that an investor will likely incur in purchasing and holding a financial product, and does not attempt to measure the features of a financial product.

You can request an EAC calculation from clientservices@ipmc.co.za or call us on 021 673-1340.

• Collective Investment Schemes (including foreign collective investment schemes duly approved for marketing in South Africa)
• Contracts under a linked investment service provider (LISP) licence
• All insurance contracts (other than pure risk-based insurance contracts)
• Compulsory and voluntary purchase guaranteed non-profit life annuities
• Products wrapped in a life wrapper
• Memberships of retirement annuity and preservation funds

All charges that an investor incurs and will incur over the relevant period are to be included in the EAC measure for that Financial Product. Where a charge is not available, a reasonable best-estimate is used and explained in the free text notes.

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.

The Effective Annual Cost (EAC) is a measure which has been introduced to allow you to compare the estimated impact of charges on investment returns when you invest in different Financial Products. It is expressed as an annualised percentage. The EAC is made up of four charges, which are added together, as shown in the table below. The figures only show the estimated impact of immediate and future charges, and do not include the impact of any charges that have already been incurred. The effect of some of the charges may vary, depending on your investment period. The EAC calculation assumes that an investor terminates his or her investment in the Financial Product at the end of the relevant periods shown in the table.

In addition, there may be free text notes explaining some of the costs included.

1. Investment Management Charges is the weighted average of the Total Investment Cost (TIC) associated with the fund including the costs of any underlying funds. Less any rebates which you may receive.
2. Advice Charges are the financial planning costs that are paid to your financial adviser on your behalf, including initial and on-going fees as applicable on both lump-sum and recurring investments. Where the adviser fee is not facilitated by us or where there is no advisor on record, the advice charge will be 0%.
3. Administration Charges are the costs relating to the administration of financial products. For direct investments, the administration charge is included in the TIC listed above and the Administration Charge will thus be 0%
4. Other Charges is a catch-all for all remaining charges, such as termination charges, penalties, loyalty bonuses, guarantees, smoothing or risk benefits, and charges for risk benefits such as a premium-waiver benefit. This component is only shown in the EAC table where it has a non-zero value.

The EAC will depend on your fund selection and how the markets perform during the term of your investment. All charges include VAT where applicable.

EAC disclosure is being phased in from 1 October 2016 (effective date 01 June 2016). Initially disclosure will be made to new investors only or existing investors into new product. 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:

• 1st June 2017 for products sold after 01 June 2010 the investor must receive EAC of the products invested in on at least an annual basis and before a qualifying event occurs. Qualifying event is any additional investment into existing products;
• 1st June 2018 for products sold between 01 June 2000 and 31 May 2000 the investor must receive EAC of the products invested in on at least an annual basis and before a qualifying event occurs. Qualifying event is any additional investment into existing products; and
• 1st June 2019 for products sold before 01 June 2000 the investor must receive EAC of the products invested in on at least an annual basis and before a qualifying event occurs. Qualifying event is any additional investment into existing products;