Scrutiny to rise on insurers' practice of charging expenses to par funds

FUND expense ratios are an item that Singapore investors do not pay enough attention to. It is a material factor in the returns they reap from their investment funds. The lower the total expense ratio (TER), the higher the potential net returns.

A similar principle broadly applies to participating policies in insurance, such as whole life and endowment plans. The big difference is that the returns that accrue to par policyholders are smoothed - that is, insurers may not distribute all surpluses in a good year, in order to maintain a steady rate of bonus distribution in difficult years and ultimately in the long run.

Still, life funds' TERs remain a material factor in the total net returns disclosed for par policies. Earlier this year the Monetary Authority of Singapore (MAS) sought industry feedback on a set of proposed requirements relating to the charging of expenses to the par fund. The consultation period closed in March. In the preface to its document, MAS said it had "observed instances of inappropriate charging of expenses to the par fund".