What changes have you made to the way you take charges?
Some costs, typically associated with investing in alternative assets such as private equity and infrastructure, are currently classed as Investment Management Expenses (IMEs). This means they are recovered as part of the Annual Management Charge (AMC) and not disclosed separately.
These costs will move to being deducted directly from the value of the underlying assets and will therefore be disclosed as part of the overall Further Costs.
What are Further Costs?
Further Costs are other costs not covered by the AMC. An example of these are;
- maintenance costs for property investments
- costs associated with investing in infrastructure, such as utilities, transport and renewable energy
Will Further Costs change in the future?
Our practice is to review these annually and therefore they could vary over time.
What has the alternative asset exposure grown to?
The Treasury and Investment Office (T&IO) are responsible for the strategic asset allocation of the PruFund range of funds and With-Profits funds and over time they have increased the exposure to alternative assets. The allocation will differ depending on what fund your client is invested in. As an example, the alternative asset exposure within the PruFund Growth Fund has increased from 5.40% in 2010 to 10.50% end 2022.
What funds are affected?
The tables at the end of this Q&A outline the funds that are affected.
For the PruFund range of funds, these changes will also apply to the associated PruFund Account and the PruFund Protected Funds on all products.
What does this mean for clients?
Further Costs in relation to the PruFund range of funds are factored into the investment return of the unsmoothed assets and in the Expected Growth Rate (EGR) calculations.
The impact on Further Costs will depend on the mix of assets that a fund has invested in, and the level will continue to vary over time depending on the assets held.
For Prudential Assurance Company business, AMCs for some versions of PruFund will be adjusted as we have made the decision to reduce the AMC for most of these funds. These are summarised in the tables at the end of this Q&A.
Will this affect the range of PruFund funds available on the M&G Wealth Platform?
The changes being implemented will affect all With-Profit and PruFund funds as outlined in the table at the end of this Q&A.
Why is the impact different for PruFund Cautious?
This is due to the difference in the precise underlying assets that PruFund Cautious invests in.
Is the PruFund Planet range affected?
No, PruFund Planet is largely unaffected due to the difference in the precise underlying assets. In addition, the Further Costs for the PruFund Planet range was reviewed in January 2023 and resulted in an increase in Further Costs which took effect from 23rd January 2023.
Is the change being implemented in the same way across all tax wrappers?
Further Costs are increasing across all products for the funds affected. However products administered by Prudential Assurance Company (PAC) are making some reductions to their AMCs alongside this change, while products administered by Prudential International Assurance Plc (PIA) are not.
What’s the difference between PAC and PIA?
PIA and PAC are separate entities and are subject to different influencing factors, decision making processes and a separate Board.
PAC – Prudential Assurance Company administer our onshore tax wrappers. For example Retirement Account, ISA, Trustee Investment Plan, Flexible Retirement Plan and Prudential Investment Plan.
PIA – Prudential International Assurance Plc administer our offshore tax wrappers. For example International Portfolio Bond, Prudential International Investment Bond and International Prudence Bond.
How will clients be notified?
For PAC products – clients will be made aware of the change in their next regular statement.
For PIA products – A one-off communication due to the reallocation of costs outlined above. As stated in the Key Features documents, Key Information Documents and Fund Guides, Further Costs will vary over time, depending on the assets held within the given fund. We will not write on an ongoing basis regarding this.
Does this mean EGRs will change more frequently?
EGRs reflect our view of how we think each PruFund will perform over the longer term. Clients are not expected to see any changes in their EGR as are result of the changes to the allocation of investment costs.