THE Government's move to cut and eventually eliminate the sales charges on unit trusts and investment-linked insurance funds (ILPs) in the CPF Investment Scheme is long overdue. From October 1 this year, all funds in the CPFIS are to cap sales charges at 1.5 per cent. From October 2019, investors will pay no sales charges at all.

Wrap fees, which are an annual portfolio advisory fee, will also get the chop. The current cap of 1 per cent per annum on wrap fees will be slashed to 0.7 per cent in October, and further reduced to 0.4 per cent next October.

Sales charges on funds in the CPFIS are a legacy of a system started decades ago, when retail funds with high fees were allowed into the scheme.To some degree the scrapping of sales charges may be viewed in the context of developments in mature markets such as the UK and Australia where product commissions have been banned in the financial advisory industry, as they are a conflict of interest and incentivise the wrong behaviour. "Churning'' is one such behaviour, where investors are persuaded to switch funds, not because the funds make sense in their portfolios, but because advisers generate lucrative income that way.