Unit trust functions should be kept separate, says Maznah

Written by Surin Murugiah & Darlene Liew
Sunday, 04 October 2009 23:34

KUALA LUMPUR: Unit trust fund product manufacturing and distribution must be kept separate to ensure that independent advice is given in an unbiased manner to help investors make informed choices, said AmInvestment Bank Group funds management division chief executive officer (CEO) Datin Maznah Mahbob.

The products on offer must also extend across various asset classes, from equities, bonds and commodities as well as provide investors with the option of investing abroad or locally, she said.

Speaking to The Edge Financial Daily on the sidelines of an Asian capital markets conference here last week, Maznah said the current practice among some of the larger fund management players to control the distribution of their own products prevented investors from receiving impartial advice on the products.

"For example, the agent might encourage the investors to invest in high-risk products as the fees for these products are higher compared to low-risk products. Some of the agents do not even disclose the whole range of products available to investors.

"This would not be the case if the distributor is totally independent of the product manufacturer," she said.

She said many of the defensive low-risk products gave decent returns to investors, but these products were sometimes not offered to investors as agents found the fees to be too low for their liking.

Maznah also said trailer fees should be standardised to benefit investors as a whole, as with the present system of varied fees structure, the selling agent had better incentives to push expensive products onto investors rather than what would actually be to the benefit of the buyer.

A trailer fee is added on to the annual service fee and paid to brokers periodically as an incentive not to switch investors to other funds.

Among the charges found on AmBank Group's website are the entry and/or exit fee that cover the cost of establishing unit trust holdings, and commissions payable by the manager to its licensed distributor.

There are also ongoing fees and expenses, clustered as management expense ratio, which include the fees for the manager and trustee, and trust expense. Other applicable charges are switching fee and transfer fee.

When asked if regulatory changes should be made to prevent expensive products being sold to investors due to the current situation, Maznah said the present structure was governed by the industry players themselves and not by government regulations.

"Although the fees are set by the industry, the commissions for distributors are negotiated. In reality, the distributors end up getting the lion's share of the fees," she said.

Maznah also alluded to the limitations on local investors utilising their Employees Provident Fund (EPF) savings, in the sense that the prevailing regulations do not allow them to invest in foreign unit trust products.

"The flow of retail funds into the unit trust industry is low due to factors like this," she said.