Enter unit trust exit fees

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The Independent Online
PLANS to allow unit trusts to bring in 'exit charges', and encourage people to invest long-term received full backing from the Securities and Investments Board in a discussion paper last week, writes Tom Tickell.

The SIB, the sector's regulator, wants to extend the system which only applies under present rules if investors take out Personal Equity Plans.

Exit charges would redistribute the levies that unit trusts impose. Instead of paying an initial charge of between 5 per cent and 7 per cent, investors would pay perhaps 2 per cent up front. The scale of the exit charges would depend on how long the money remained in the fund.

The industry may well follow Fidelity's charging pattern on PEPs, by which it levies an exit charge of 3 per cent if a PEP is cashed in within 12 months. That drops to 2 per cent if money is withdrawn before it has been invested two years and 1 per cent in the third year. Once funds have been in a PEP for four years exit charges disappear altogether.

The SIB recommends allowing performance fees on high-risk Geared Futures and Options funds. All American trusts in this area use performance fees, where charges depend on how far fund managers outperform or underperform an index. But the SIB does not want to extend the system to other forms of trust.

The regulators ducked making a recommendation on single pricing. The present system, through which trusts publish the price at which they will sell units and a second at which they will cash them in, is likely to survive because the industry cannot agree on a replacement.