Tens of thousands of savers in unit and investment trusts are to be told for the first time the cash cost of managing their funds, ending years of argument within the financial services industry.
The Personal Investment Authority, the leading financial watchdog, said yesterday it would require fund managers to disclose their charges to clients before their products can be sold. The proposals bring unit and investment trusts further into line with life and pensions products, where a similar regime has been in force since the beginning of the year.
David Peffer, the PIA's secretary, said yesterday that exact details for the unit and investment trust industry will be published shortly. Comments on some of the technical aspects will be sought before the new rules become operational by the middle of next year.
The announcement was welcomed yesterday by sections of the industry. Philip Warland, director general at the Association of Unit Trust and Investment Funds, said: "PIA board members and our staff have worked very closely... on these proposals. We are pleased they have been approved and look forward to seeing the detail."
The key elements to be disclosed under the new rules will be a statement of both initial and on-going charges - in cash terms - on a nominal lump sum. Fund managers will have to provide an additional table showing the build-up of charges on an investment over time.
Where some companies, for example M&G, impose exit charges on savers who liquidate their investments early, the cost of doing so will also have to be disclosed.
A further example will have to be given of the charges in cases where the original investment has doubled. This is seen as important in that the annual management levy is imposed on the overall lump sum, which may be growing thanks to investment returns.
The information will be in a document handed to potential investors before they buy a product. Exceptions will be allowed where the investment is bought over the telephone or by post.
Mr Peffer said: "It may be to investors' advantage to carry out a transaction quickly. In that case, delaying the purchase until a key features document is sent out may not be to their benefit."
A cooling-off period will be allowed for investors who want to change their minds.
The PIA's decision brings to an end years of wrangling between financial regulators and the unit and investment trust industry, which regularly attacked as unworkable earlier proposals by the PIA and its predecessors.
Hundreds of millions of pounds of unit and investment trusts are sold each month to new investors.
Supporters of the new disclosure regime have long argued that savers should be told exactly how much an investment will cost them. The life industry was forced to tell its clients what the cost of commissions and other charges are on a life insurance or pension product.