The AFM intends to take steps in order to compel retail fund managers to disclose actual costs of ownership information to retail investors.
In his speech at the recent "FD Morningstar Awards" on 4 April 2012, Theodor Kockelkoren, a director of the Dutch Authority for the Financial Markets (“AFM”), indicates that the AFM intends to compel retail fund managers to provide more accurate cost information to retail investors. Referring to a future report of the AFM, the AFM director also raises questions as to the suitability of synthetic Exchange Traded Funds for retail investors.
Under current regulations, managers are required to disclose “total expense ratio” (“TER”) information concerning their funds. However, according to Mr. Kockelkoren, the TER of a fund is not a reliable figure, because it does not reflect the total costs that are actually deducted from the gross return on a fund investment. Furthermore, he believes that not all fund managers include the same (types of) costs in the TER, making it unsuitable for fund performance comparison purposes. In order to address these issues, the AFM intends to use its powers to compel fund managers to disclose “total cost of ownership” information instead of the TER, unless the sector does so proactively.
The titel of the speech was: “Op weg naar de KNVB beker!” (“Towards the KNVB award!”). In Dutch, “KNVB” stands for cost-efficiency, purpose, safety and understandability in relation to financial products. In his speech, Theodor Kockelkoren hints at a “KNVB award”, which would reward the ‘best’ investment fund on the basis of these criteria.