03 Oct 2017

Standardised Total Expense Ratio

Framework to calculate a single standardised expense ratio for reporting to investors.

Allocators need to understand fees and charges to assess their impact on performance, compare different investment opportunities, and make well-informed investment decisions. When there is divergence in market practices for disclosure, it is difficult for allocators to contrast different expense categories across different funds.

STER includes the following fees and expenses:

  • Management Fee,
  • Operating Expenses (such as administrator, audit, legal, and custody fees),
  • Compensation pass-through expenses,
  • Other pass-through expenses,
  • Direct research costs, and
  • Soft dollar research costs.

It does not include performance fees, trading costs, or one-off entry and exit charges which would distort the ratio and reduce its usefulness for comparability.

This memo sets out the definition of a standardised methodology for calculating a Standardised Total Expense Ratio (STER). It defines the STER and provides an overview of existing standards, guidance, and regulation on fees and expenses.