On 10 February 2016, the Association for Savings and Investment South Africa (ASISA) published a media release informing its members of a new Standard regarding cost disclosures which will have to be adopted from 1 June 2016.
From 1 June 2016, all members of the Association for Savings and Investment South Africa (ASISA) will be required to adopt the new Standard on Effective Annual Cost (EAC). All new investment applications will form part of the first phase which must be implemented by 1 October 2016.
The new Standard on EAC will give consumers and advisors the ability to compare fees and the impact thereof on the investment returns for most savings and investment products.
ASISA is the association representing the majority of South Africa’s asset management, collective investment scheme management companies, multi-managers, linked investment service providers and life insurance companies. Therefore, the EAC Standard will apply to most of the products which are offered by these type of companies.
The EAC Standard assists with the standardisation of cost disclosures by product providers. This will give consumers and advisors the ability to compare charges across all product types in a clear and concise way.
The EAC standard requires product providers to disclose four separate components of charges (including VAT). Product providers will also have to perform the EAC calculations using an assumption that an investor terminates the investment at the end of specific time periods that must be shown in the disclosure table:
- Investment Management Charges – costs and charges for the management of all underlying investment portfolios
- Advice Charges – initial and annual fees, both lump sum and recurring
- Administration Charges – all charges relating to the administration of a financial product
- Other Charges – catch all for all remaining charges such as termination charges, penalties, loyalty bonuses, guarantees, smoothing or risk benefits, wrap fund charges and risk benefits like waiver of premium.
The EAC Standard will be implemented using a phased-in approach.
- Phase 1: scheduled from 1 June 2017 – investors will be provided with an EAC for products sold after 1 April 2010.
- Phase 2: scheduled from 1 June 2018 – will require that products sold after 1 April 2000 must be compliant with the EAC standard.
- Phase 3: scheduled from 1 June 2019 – will require products sold before 1 April 2000 to be compliant.
ASISA members will be required to submit a compliance certificate to ASISA on an annual basis within three months of the year ending 31 December. The certificate must certify that the EAC calculations and disclosures comply with the purpose and spirit of the EAC Standard. The certificate will have to be signed by a Company’s CEO and either the auditor, statutory actuary or the Chief Compliance Officer of the company.