Compare apples with apples : A clearer way to disclose costs

Comparing the costs of investment products from different financial services providers has always been a challenge for investors because there has never been an industry stand-ard to disclose costs. Different cost disclosures have been applied to different investment products making it difficult to compare, and the assumptions behind illustrating costs were not used consistently across all investment products.

To help investors make more informed decisions when choosing investment products, the Association for Savings and Investment South Africa (ASISA) has developed the Effective Annual Cost (EAC) disclosure method. It allows investors to compare costs on most investment products, and their impact on investment returns. The first phase of implementing the EAC will be concluded by 1 October 2016 at which time investors should be able to request the EAC. 

The EAC illustrates all charges that an investor is likely to incur when taking out an investment product. The EAC will ensure that investment cost implications of different products can be compared irrespective of the differing cost structures. With this standardised disclosure methodology, investors are able to see upfront the impact of individual cost items (administration, investments and advice) and the total cost of the investment. 

Furthermore, the EAC will illustrate the cost investors would incur when exiting an investment policy prematurely so investors are fully aware of the impact of termination charges or the impact of loss of loyalty bonus schemes. In the past exit fees were not disclosed in a way that allowed for ease of comparison, and the EAC aims to alleviate this. 

Before making an investment decision, investors will, from 1 October 2016, be able to request the EAC from any product provider. All investment companies will be required to include the EAC in point of sale client documentation such as quotes and proposals. 

The introduction of the EAC is very much in line with TCF, which places a great deal of emphasis on positive client outcomes – a principle that has always been heavily ingrained in the way we do business. We are of the view that the EAC disclosure is a big step in the right direction for investors and for the industry in its entirety.