On 9 March 2020, the CSSF updated its FAQ concerning UCITS to provide greater clarity to investors concerning compensation, fees and expenses in order to allow comparison across UCITS and facilitate investment choice.

The CSSF clarifies the following:

Disclosure of performance fees
 

  • The investment manager is responsible and accountable for the investments of the UCITS and its related performance.
  • To be disclosed in the prospectus:
    • The fee model and the investment manager as the recipient of such a performance fee,
    • Any performance fee sharing arrangement with any investment advisor(s) contractually linked to the UCITS.

 

Disclosures on expenses or fees
 

Expenses or fees shall be disclosed in the prospectus.

The disclosure shall distinguish the fees to be paid:

  • by the unit-holders
  • out of the assets of the UCITS

Where a service fee is directly paid out of the assets of the UCITS to the investment manager(s), and possibly to any investment advisor(s) contractually linked to the UCITS, the method of calculation or the rate of the fee to each recipient must be disclosed in the prospectus.

Fees for investment management or advice

The investment manager’s fee and/or the investment advisor’s fee shall only pay for investment management, respectively investment advice. 

As a general rule, the investment advisor’s fee is expected to be at a lower level than the investment manager’s fee.

Fees for activities beyond the direct scope of investment management or advice

Such expenses or fees must be disclosed separately from investment manager’s fee respectively investment advisor’s fee, in a way that clearly informs investors about the nature of such expenses or fees.

Specific case of an “all-in” fee

An “all-in” fee implies that only one compensation amount is paid out of the assets of the UCITS to a recipient (commonly the management company) who will afterwards pay the other service providers to the UCITS.

The prospectus disclosure must clearly state the scope and nature of such “all-in” fee. Ideally, each contractual recipient of this all-in fee should be specified.


There is more to come!

ESMA will publish in the coming months guidelines on performance fees in UCITS which might require enhanced prospectus disclosures and potentially amendments of the fee model.


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