Ethics in focus: Trading in unit trusts

FROM Oct 1 this year, CPF members who make new purchases of products such as investment-linked insurance policies (ILPs) and unit trusts under the CPF Investment Scheme (CPFIS) will pay a lower sales charge of 1.5 per cent. This is halved from the 3 per cent they had to pay previously. By Oct 1, 2019, this charge will be removed entirely and CPFIS members will no longer need to pay such commission. For CPFIS investors who have wrap accounts with financial advisers, the annual wrap fee on assets under management that they pay, capped at 1 per cent previously, was also lowered on Oct 1, 2018 to 0.7 per cent. This will drop further in less than a year to 0.4 per cent on Oct 1, 2019.

The stepwise removal of the CPFIS sales charge and the lowering of the wrap fee for CPFIS members are to reduce the cost of investing for CPF members. The Ministry of Manpower notes that lowering and removing the sales charge weakens the incentive for financial advisers to push sales of products just to earn more commission. Reducing the 0.4 per cent cap on wrap fees, meanwhile, brings such fees on par with those charged by online investment platforms in the cash market.

The practice of buying and selling investment products at the expense of the investor merely to generate commissions for financial advisers is also known as churning.