A Glossary of Fund Fees, from OCF to Account Charges

Fund documents are full of abbreviations, and each one is a charge. This glossary decodes the terms so you can add up what a fund really costs before you buy.

Summary

• The ongoing charges figure (OCF) covers the yearly cost of running a fund, including management, administration, custody, legal and audit fees.
• Portfolio transaction costs fall outside the OCF, although an entry or exit charge the fund itself pays when trading units of other funds does count within it.
• Fund charges and account charges are separate, so check both when working out what an investment will really cost.
• Fund managers must review their charges at least once a year to judge whether fees are justified, and must publish what they conclude.
• The FCA expects the OCF to be the headline figure for UCITS funds so investors can compare charges consistently.

Fund factsheets and platform pages are full of abbreviations: OCF, AMC, KIID. Each one describes a charge, and charges reduce what your investment is worth. This glossary explains what the terms mean, what each charge covers and what it leaves out, so you can work out the total cost of owning a fund before you commit money to it.

Why Fund Charges Matter

Fund charges are taken from the fund itself rather than billed to you separately, so their effect is quiet: the value of your investment simply reflects them and is lower as a result. The Financial Conduct Authority (FCA), the UK’s financial regulator, has said that investors should look at charges alongside performance and the level of risk, because all three contribute to fund returns.

Comparison is where the trouble starts. In a review of how firms present charges, the FCA found examples of firms showing a consistent combined figure across all their documents, but also examples of firms quoting different charge figures in different documents, which makes effective comparison difficult. Mixing the annual management charge in one place and the ongoing charges figure in another was a specific concern.

The Core Charges on a Fund Factsheet

Annual management charge (AMC). A fee for managing the fund. Mixing it with the ongoing charges figure across different documents can confuse investors and hinder comparison, which is one of the FCA’s main concerns in its charges review.

Ongoing charges figure (OCF). A single combined figure for the costs of running a fund across its financial year. That covers the yearly cost of managing the money, plus administration, plus fees for the fund’s independent oversight functions, including trustees, depositaries, custodians, lawyers and auditors.

Key investor information document (KIID). A document covering a fund’s key information, including charges. For UCITS funds, the FCA expects charges information in marketing material, including websites, to be consistent with the KIID, with the OCF as the headline figure.

UCITS. A category of regulated fund. For these funds, the FCA expects the OCF to be used as the headline charges figure by fund firms, platforms and other intermediaries.

Share class. A version of a fund with its own charge structure. Charges vary between share classes, so two investors can hold the same fund and pay different amounts. The share class is usually shown in the fund name or on the factsheet.

Prospectus. The full legal document for a fund, where descriptions of charges should explain clearly how each one works. It is heavier reading than a factsheet, but it is where the detail on entry, exit and switching charges sits.

ISIN. An International Securities Identification Number, a unique code that identifies a fund precisely. Fund providers’ websites let you search for a fund by name or ISIN, which is useful when several share classes share a similar name.

Charges Taken When Money Enters or Leaves

Initial charge (entry charge). The largest amount that can be deducted from your money before your order is placed into the fund you selected. Some providers do not apply entry charges on their UK fund ranges, but others do, so check the prospectus rather than assuming.

Exit charge (redemption charge). Money taken from an investment before the proceeds are paid out when you sell. Like entry charges, these are not universal: some fund providers charge them and some do not.

Switching fee. A charge levied when an investor moves from one share class to another within the same fund. It is separate from selling the fund altogether, and it applies only where the provider imposes it.

Bid/offer spread. On dual-priced funds, the difference between the quoted bid price, which is what you get when selling, and the offer price, which is what you pay when buying. On dual-priced funds, the initial charge is folded into the buying price, so it appears within the spread rather than as a separately stated fee.

Dual-priced fund. A fund quoted with two prices, one for buying and one for selling. Charges on these funds are built into the prices rather than shown as separate fees.

Costs That Sit Outside the OCF

Portfolio transaction costs. The costs of buying and selling the underlying investments inside the fund. The OCF excludes these, with one exception: it does include an entry or exit charge paid by the fund itself when it buys or sells units in another fund.

That exception matters wherever a fund holds units in other funds, because the cost of trading those units lands inside the OCF while trading in shares, bonds and other assets does not. A fund that trades its holdings frequently can therefore carry real transaction costs that a similar OCF does not reveal.

Charges Made by Your Account Provider

Fund charges are not the only numbers worth checking. The firm that runs your account may make its own charges, and these sit outside the fund’s OCF.

Account fee. A charge some firms make for running your investment account, separate from the charges on the funds held within it. Firms differ in what they charge and how they structure it, so check the details before you commit.

Custody. The service of holding assets on your behalf. Custody is one of the independent oversight functions whose fees sit inside the OCF, so it is already part of the fund-level figure.

Funds are often held in a stocks and shares ISA. ISAs Explained: Which Type Suits Your Savings Goal? covers how the different wrappers work and what each is designed for.

Who Checks Whether a Fund Is Worth Its Charges

Authorised fund manager (AFM). The firm that operates a UK authorised fund. Its governing board must include independent directors under the FCA’s Collective Investment Schemes sourcebook, known as COLL, the rulebook that covers authorised funds.

Assessment of value (AoV). A review that AFMs must carry out at least annually, weighing whether what investors pay is warranted by what the fund delivers for them. Firms must publish their conclusions and, where charges are not justified, explain clearly what action has been or will be taken.

Investment Management Association (IMA). A trade body for the investment industry. Following its charges review, the FCA said it would work with the IMA, which has issued voluntary guidance to the industry.

Financial Conduct Authority (FCA). The UK’s financial regulator, whose statutory objectives include ensuring consumers receive an appropriate degree of protection. It also requires that what firms tell investors is presented plainly, treated fairly and leaves no false impression. Its value assessment rules came into force in September 2019, following the final report of its Asset Management Market Study in June 2017, which found weak pressure on fund prices and uncompetitive outcomes for investors in authorised funds.

Authorisation matters before fees even come into it. Check the FCA Register Before You Invest a Penny explains how to confirm a firm is on the register before handing over money.

Reading a Fund Factsheet Before You Commit

The FCA’s charges review covered 11 firms operating funds sold to UK retail consumers, which together managed 29% of the funds in the UK retail market. It found examples of good practice, such as showing the same summary charges figure on websites and fund documents, but also cases where administration charges were described poorly, in terms that did not match how the charge worked in practice.

With that in mind, a few checks before committing:

• Confirm the headline figure is the OCF for UCITS funds, not the AMC.
• Look for stated entry, exit and switching charges, and read the prospectus where the factsheet is silent.
• Note whether the fund is dual-priced, since costs can be built into the spread rather than shown as a fee.
• Read how administration charges are described, and check the description actually matches how the charge operates.

How to Compare the Total Cost of Two Funds

Compare like with like: OCF against OCF, on the same share class, then add any account charges that will apply where you hold it. Remember that transaction costs sit outside the OCF, so include them where they are disclosed. The FCA has said consumers are likely to find comparison easier when all firms use one combined figure consistently, so where documents disagree, the KIID and prospectus are the reference points.

Cost is one of three areas the FCA highlighted, alongside performance and risk, so a fund should not be judged on charges alone. The point of the exercise is knowing the full price of ownership, not chasing the smallest number on a page.

Next steps

• Five Stocks and Shares ISA Myths That Cost You Money clears up common misunderstandings about the account many UK investors use to hold funds.
• What Happens When Your Investment Firm Fails explains how your holdings are treated and what protection applies if a platform goes out of business.

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