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Master trusts face charges, fees concerns

MASTER trusts have been dogged by a reputation for high charges and complex fee structures.

The recently launched Acumen and FirstChoice corporate master trusts (see main article) both claim to have tackled this issue.

Their fees are described as competitive, simple and easy to understand.

A ‘back of the envelope” analysis confirms their fees are relatively simple and easy to understand.

It also shows that FirstChoice members could end up paying nearly double the fees of Acumen members.

Acumen charges three kinds of fees:

p a member fee of $1.25 per week for the basic product, equal to $65 per year;

p an asset-based fee, starting at 0.50 per cent for the first $500,000. The percentage is applied on a sliding scale, bottoming at 0.10 per cent for balances above $2.5 million; and

p investment management fees ranging from 0.11 per cent to 0.52 per cent, depending on the investment choices selected by members.

For this exercise, we can assume that a ‘typical’ member with $50,000 in the plan would pay a total of 1.0 per cent in asset and investment management fees, or $500. Add the $65 member fee and the total for the year is $565.

FirstChoice charges two kinds of fees:

p an investor fee of $5 per month, or $60 per year; and

p a management fee, ranging from 1.10 per cent to 2.15 per cent depending on the investment options chosen. Instead of a sliding scale, it offers rebates that kick in when plan assets reach $1 million.

Assuming a member has $50,000 in a ‘growth’ investment option and no rebates apply, they would pay a 1.95 per cent management fee or $975. Add the $60 investor fee and the total for the year is $1,035.

One explanation for the higher fees is that FirstChoice pays ongoing ‘trail’ fees to financial advisers who recommend its products. The trail fee, paid annually, is 0.44 per cent of the amount invested.

Neither Acumen nor FirstChoice applies transaction fees, such as entry or exit fees.

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