OCF vs Ex-ante OCF
benjaminfabi
Moderator
Following on from the Howwow today where the chat picked this up, I've asked FE for a data sheet on the different components and calculation methods of each of the OCF and the OCF Ex-Ante.
Benjamin Fabi
Comments
It seems like the Long Scan's don't use the MIFID2 charges data, which probably means the performance figures aren't net of MIFID 2 charges - something that would need to be addressed, if true, i'd say.
Although, second guessing myself, maybe the change in unit price over a period is all we need to know - so the charges they show might not be part of any Analytics calculations.
Your second statement is correct. The unit price by definition has to take into account all actual charges that have been paid. The OCF, TER, OCF Ex-ante etc are just variations in the calculations to report them.
My interest is in the technical difference between the calculation of the two in the subject line. I'll update this thread with FE's answer.
They sent me the following:
Difference between the fund's OCF and the Mifid Ongoing charges
Ongoing costs – This is basically the newer version of the OCF. The OCF will continue to be used for UCITS fund, but we are now seeing all funds also disclosing the Ongoing charge, as it is a requirement under the new PRIIPs regulation, as well as MiFID II. What goes into these charges is basically the same but the newer Ongoing charge figure has some extra elements, that need to be considered as part of the calculation. For example, fees for property management, listing and passporting, financing costs (such as overdraft interest) also for those funds that have decided to absorb research costs as part of MIFID II, these will cease to be considered transaction costs and will now fall into ongoing charge figures. With this in mind, the expectation would be to see similar costs figures disclosed for both of these figures, but they may differ slightly. A final consideration is to consider that the two figures may have been calculated at different times in the year, which may result in further variation.
Transaction costs – Mifid and PRIIPs adds a new requirement for firms to separately disclose their transaction costs. Transaction costs are the costs of trading within a fund’s portfolio of holdings. There are two main elements which make up this charge.
a) Explicit costs – Actual costs of placing the trade, such as broker fees.
b) Implicit costs – Should be seen more as an opportunity costs of trading. This is the difference in price from when an order is sent and when it is placed. During this time the costs of what you are buying can go up or down, so depending if you are selling or buying, this can work in your favour or against you. The result of this is that implicit transaction costs can be negative, and the overall transaction costs figure can also be negative.
Ah perfect. Thanks for posting this.
Sorry to hijack this thread but we are literally talking about this in the office today in relation to pension/investment switches. I am sure I know the answer but wanted someone to clarify but when adding costs into RIY calcs then this is the total ongoing for the recommended plan and will include OCF, transactional, incidental costs ex ate etc (plus usual advice costs/platform etc)?
Finding it difficult to provide a fair comparison when old Aviva/AEGON/L&G/Standard Life pensions etc are only providing lets say a standard 1% AMC/TER (presumably as they don't have to provide anymore as not under MiFID) and therefore its not a fair comparison on the basis that additional costs will apply but they don't have to provide them.
We are thinking of putting something in reports just to say that a typical incidental/transaction cost is x% just to provide some context. What are others thoughts?
@Nath we struggle with that too. Our network tells us you've got to look at cost on a RIY basis, which we do to tick that box but then tell compliance it's worthless due to issues such as you raise and stick a manual side by side % and £ cost comparison in the client report (which they probably understand better than a RIY figure)
I usually make reference to the fact that old life company pension charges can be opaque (ish) and therefore the headline cost does not necessarily reflect the full charging structure when compared to modern style pensions held via platforms which break down the charges fully, then something about why this is (different rules), rather than trying to put a figure on what typical transactions charges might be as I think this is possibly opening up holes which can be poked through. I'm not entirely sure there is a typical incidental/transaction cost that can be applied across the board, maybe if you break it down into sectors but then even that is tricky.
It is a really frustrating element to the advice process because it's bad enough explaining it to some advisers let alone to clients!