7B.13 PRS Fees, Charges and Expenses
Key Takeaways
In the study guide's 10-year example with 10% gross returns, RM100 grows to RM259.40 with no fees, RM236.70 with 1% annual fees, RM215.90 with 2% annual fees and RM241.20 with a 7% initial sales charge.
A PRS dealing charge must be permitted by the deed and expressed as a fixed amount or a fixed percentage, and discounts and rebates in any form are prohibited.
A change to the dealing charge within the deed's range takes effect only 30 days after the supplementary disclosure document is issued, following notice to the Trustee and the SC.
PRS Providers and Scheme Trustees may be remunerated only through annual management and trustee fees accrued daily and based on the fund's NAV.
Fees collected by a PRS Provider on behalf of the PPA are not the provider's remuneration and must not be confused with the annual management fee.
Why Fees Matter So Much in PRS
Higher fees mean less money invested and lower annual returns, compounding over the long life of a retirement plan. The study guide assumes four funds each earn 10% a year gross for 10 years:
| Fund A | Fund B | Fund C | Fund D | |
|---|---|---|---|---|
| Initial sales charge | 0% | 0% | 0% | 7% |
| Annual management fee and expenses | 0% | 1% | 2% | 0% |
| Available to invest at year 0 | 100% | 100% | 100% | 93% |
| Net return each year | 10% | 9% | 8% | 10% |
| Value after 10 years (per RM100 invested) | RM259.40 | RM236.70 | RM215.90 | RM241.20 |
(The study guide labels the last row "total returns after 10 years" as 259.4%, 236.7% and so on; these are values as a percentage of the amount invested.)
- A beats B and C only because B's and C's fees shrink the amount compounding each year.
- A beats D because D's 7% sales charge leaves only 93% invested from the start.
Members should understand all costs: management, trustee and PPA fees as well as charges on dealing.
Dealing Charges (Entry and Exit)
| Rule | Detail |
|---|---|
| What | A charge for participating in the PRS: an entry fee, an exit fee, or just an entry fee; mainly to pay PRS Consultants and marketing costs |
| Basis | Must be permitted by the deed, clearly disclosed and expressed as a fixed amount or a fixed percentage of the unit price or amount invested |
| Change within the deed's range | Notify the Trustee and the SC, issue a supplementary disclosure document, then wait 30 days before the new charge applies |
| Increase above the deed's maximum | Only by special resolution at a members' meeting |
| Discounts and rebates | Prohibited in any form; members and contributors must be told the actual rate |
Remuneration of the PRS Provider and Trustee
- Both may be paid only through an annual management fee and an annual trustee fee charged to the fund.
- Fees are accrued daily and calculated on the fund's NAV, must be permitted by the deed, disclosed and reasonable for each party's role.
- The management fee rate can be raised only through a supplementary deed with members passing a special resolution.
PPA Fees
PRS Providers may collect fees on behalf of the PPA, acting as its agents. These are not the provider's remuneration and should not be confused with the management fee. The PPA itself charges for opening, transactions and maintaining accounts, and may not impose or vary fees without SC approval.
Expenses Chargeable to the Fund
Apart from PPA fees, only expenses directly related and necessary to running the scheme and fund may be paid from it:
- commissions or fees paid to brokers or dealers;
- custodial charges or sub-custodian fees;
- taxes and government or local authority charges;
- audit fees and the auditor's expenses;
- valuation fees for independent valuers acting for the fund;
- costs of modifying the deed, unless they benefit the provider or Trustee; and
- costs of members' meetings, unless they benefit the provider or Trustee.
The Scheme Trustee must ensure every expense is legitimate and reasonable compared with commercial rates; the Trustee may reimburse its own proper expenses.
The SC's Power to Review Fees
The SC may review fees and charges. If they are inconsistent with the scheme's objectives or prejudicial to members, it may require them to correspond with the services provided.
Applying It
Encik Hakim compares two PRS equity funds with similar strategies. Fund P has a 3% sales charge and a 1.5% annual management fee; Fund Q has no sales charge but a 1.8% annual fee and a separate PPA account fee collected by the provider. Following this section, the Consultant should explain that:
- the sales charge reduces the amount invested at the start, while the annual fee reduces the return every year;
- over a long retirement horizon the ongoing fee difference may outweigh the one-off charge, as the study guide's Fund A to D comparison shows;
- PPA fees go to the PPA and are not the provider's remuneration; and
- neither fund's past performance guarantees future returns, so costs are only one factor in the choice.
UTS vs PRS Fee Rules at a Glance
| Rule | UTS | PRS |
|---|---|---|
| Manager remuneration | Annual management fee only | Annual management fee only |
| Fee basis | Accrued daily on gross NAV | Accrued daily on NAV |
| Raising the management fee | Within the deed maximum: Trustee agreement, notice, supplementary prospectus and at least 90 days; above the maximum: unit holders' approval | Supplementary deed and special resolution of members |
| Sales or dealing charge changes | Disclosed per channel; actual rate stated | Within the deed range: notice to Trustee and SC, supplementary disclosure document, 30 days |
| Disguised discounts and rebates | Prohibited | Prohibited |
Using the study guide's assumption of a 10% gross annual return for 10 years, what is RM100 worth in a PRS fund that charges no sales charge but 2% a year in fees and expenses?
RM236.70
RM259.40
RM241.20
RM215.90
A PRS Provider raises its dealing charge within the range allowed by the deed. When can the new charge take effect?
30 days after issuing a supplementary disclosure document
Only after members pass a special resolution at a meeting
Immediately after the Scheme Trustee is notified in writing
After FIMM approves the change at its next board meeting
How may a PRS Provider be remunerated for managing a PRS fund?
Through discounts and rebates on members' contributions
Only through an annual management fee accrued daily on NAV
Through the account fees it collects on behalf of the PPA
Through a share of the tax relief that members claim each year
Sections you finish are checked off in the contents.