FSA proposes more transparent and flexible pricing system

Under the current system certain costs of dealing in the underlying assets of the fund can be allocated to the fund or recovered by way of a separate charge from the individual investor whose buying and selling of units leads to these costs being incurred. The current method of recovering these costs from the individual investor can lead to consumer misunderstanding and confusion. This tends to lead firms to allocate these costs to the fund.

The FSA proposes to require fund management firms to be more transparent in the disclosure of the impact of these costs on investors.

Firms can continue to allocate these costs to the fund, but to enable the more effective collection of these costs from investors who buy and sell units, firms would be able to recover them either as a separate charge to the investor (as now) or in future by means of an adjustment to the unit price. Management charges will continue to be quoted separately.

Whether allocated to the fund or recovered from transacting investors, the effect of the managers policy must be disclosed to investors up-front in the Key Features Document.

Notes for editors

1. The FSA is seeking comments on the proposals in CP 131 by the 31 May 2002.

2. The publication of this CP follows consultation on Discussion Paper 08 (Single pricing of collective investment schemes: a review) published 23 October 2001.

3. Costs of dealing in this context are market spread, brokers commission and fiscal duties (taxes) on transactions in the underlying assets of the fund.

4. Open-ended investment companies (OEICS) is the term used to describe investment companies with variable capital (ICVCs) authorised in the UK.

5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.

6. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.