COLL 6.7 Payments

1. (1)

   This section assists in securing the statutory objective of protecting consumers through requirements which govern the payments out of scheme property and charges imposed on investors when buying or selling units.

2. (2)

   The requirements clarify the nature of permitted charges and payments and ensure the disclosure for unitholders of any increases in charges and payments to the authorised fund manager.

3. (3)

   The prospectus should make adequate provision for payments from an authorised fund. This section:

   1. (a)

      prohibits, or stipulates the conditions on which, the payments out of the scheme property can be made;

   2. (b)

      requires certain payments to be conditional on disclosure in the prospectus; and

   3. (c)

      governs the allocation of payments between capital and income.

1. (1)

   Details of permissible types of payments out of scheme property are to be set out in full in the prospectus in accordance with COLL 4.2.5R (13) and COLL 4.2.5R (14) (Table: contents of the prospectus).

2. (2)

   An authorised fund manager should consider whether a payment to an affected person is unfair because of its amount or because it confers a disproportionate benefit on the affected person.

   3
3. (3)

   COLL 6.7.4 R (2) (Payments out of scheme property) does not invalidate a payment that gives rise to a difference between the rights of separate classes of unit that relates solely to the payments that may be taken out of scheme property.

4. (4)

   Payments to third parties as referred to in COLL 6.7.4 R (4) include payments to platform service providers7 and other similar platform services.4

   7

1. (1)

   For the authorised fund manager's periodic charge or for payments out of scheme property to the investment adviser, the prospectus may permit a payment based on a comparison of one or more aspects of the scheme property or price in comparison with fluctuations in the value or price of property of any description or index or other factor designated for the purpose (a "performance fee").

2. (2)

   Any performance fee should be specified in the appropriate manner in the prospectus and should be consistent with COLL 6.7.4 R. In determining whether the performance fee is consistent the authorised fund manager should have regard to factors such as:

   1. (a)

      [deleted]14

   2. (b)

      where it is made on the basis of performance of the authorised fund against any index or any other factor, that benchmark must be reasonable given the investment objectives of the authorised fund and must be consistently applied;

   3. (c)

      it may be based on performance above a defined positive rate of return (the "hurdle rate"), which may be fixed or variable;

   4. (d)

      where (b) or (c) applies, the benchmark or hurdle rate may be carried forward to future accrual periods;

   5. (e)

      the period over which it accrues and the frequency with which it crystallises should be reasonable; and

   6. (f)

      except where allowed by COLL 6.7.4 R (1), there are to be no arrangements to adjust the price or value of sale or repurchase transactions in respect of performance fees accrued or paid if the transactions occur within the accrual period of the charge.

3. (3)

   In accordance with COLL 4.2.5R (13) (Table: contents of prospectus) the prospectus should contain the maximum amount or percentage of scheme property that the performance fee might represent in an annual accounting period. This disclosure should be given in plain language together with examples of the operation of the performance fee.

1. (1)

   To introduce a new charge for the sale or redemption of units, or any new category of remuneration for its services or increase the rate stated in the prospectus, the authorised fund manager will need to comply with COLL 4.2.5 R (Table: contents of prospectus) and COLL 4.3 (Approvals and notifications).

2. (2)

   A redemption charge may be expressed in terms of amount or percentage. It may also be expressed as diminishing over the time during which the unitholder has held the units or be calculated on the basis of the unit price performance of the units. However any redemption charge should not be such that it could be reasonably regarded as restricting any right of redemption.

3. (3)

   The prospectus should contain a statement as to the determination of the order in which units which have been acquired at different times by a unitholder are to be taken to be redeemed or cancelled for the purpose of the imposition of the redemption charge.

4. (4)
   1. (a)

      10For a UCITS scheme, article 10(2)(a) of the KII Regulation requires the key investor information document to disclose the maximum percentage that might be deducted as an entry charge from the investor’s capital commitment.

   2. (b)

      10Where a preliminary charge is charged as a fixed amount or is calculated as a percentage of the price of a unit, the AFM should ensure that the actual amount charged, if it were expressed as a percentage of the amount being subscribed, does not exceed the maximum percentage stated as the entry charge in the key investor information document.

5. (5)

   10When a preliminary charge is calculated as a percentage of the price of a unit, the percentage amount should be added to:

   1. (a)

      10the price of a unit (for a single-priced authorised fund); or

   2. (b)

      10the issue price (for a dual-priced authorised fund).

6. (6)

   In relation to a regulated money market fund, any charges for the sale or redemption of units, and any change to such charges, should reflect the restrictions of the Money Market Funds Regulation.13

1. (1)

   Any payment as a result of effecting transactions for the authorised fund should be made from the capital property of the scheme.

2. (2)

   Other than the payments in (1), all other payments should be made from income property in the first instance but may be transferred to the capital account in accordance with COLL 6.7.10 R (1) (Allocation of payments to income or capital).

3. (3)

   For payments transferred to the capital property of the scheme in accordance with (2), the prospectus should disclose the matters in COLL 4.2.5R (14).

4. (4)

   If the authorised fund manager wishes to make a change in relation to the allocation of payments, the procedures in COLL 4.3 (Approvals and notifications) will be relevant.

Examples of payments which are not permitted by COLL 6.7.12 R include:

1. (1)

   commission payable to intermediaries (such payments should normally be borne by the authorised fund manager);

2. (2)

   payments or costs in relation to the preparation or dissemination of financial promotions (other than costs allowed under COLL 6.7.12 R (2)2).4

   2
3. (3)

   [deleted]4

Except as provided in COLL 6.3.5DR, an12 affected person is not liable to account to another affected person or to the unitholders of any scheme for any profits or benefits it makes or receives that are made or derived from or in connection with:

1. (1)

   dealings in the units of a scheme; or

2. (2)

   any transaction in scheme property; or

3. (3)

   the supply of services to the scheme;

where disclosure of the non-accountability has been made in the prospectus of the scheme.