Financial Services Consumer Panel demands reform of 'hidden' investment charges
The Financial Services Consumer Panel wants charges on investment funds to be much clearer for investors.
The Financial Services Consumer Panel (FSCP) has published a discussion paper calling for more clarity for investors on just what fund investments will really cost them.
Fees that people pay for this type of investment are notoriously complex and vague, with the Annual Management Charge (AMC) sometimes only representing a quarter of the true cost of the investment. These hidden costs then have a hefty impact on the returns investors enjoy. Even the fund managers themselves appear to have little understanding of exactly what the investment costs.
Taking action
The Panel, which is paid for by the Financial Conduct Authority, wants to see the disclosure of all costs in one single annual charge, presented in pounds and pence.
This would include estimates of forward costs like transaction charges. All the other costs which are currently deducted by the manager directly from the fund would be covered by the investment management firm themselves. As the report states: "Fund managers too frequently exercise poor control of costs, which are not necessarily visible to investors and which managers can deduct directly from the value of funds, rather than treat as a business cost that they meet out of their own pockets."
By installing a single charge, investors would be able to compare different companies’ charges and encourage fund managers to be more efficient.
Garnering support
The FSCP's report has been warmly welcomed by certain elements of the investment market.
Nick Hungerford, CEO at online investment portfolio manager Nutmeg, said the current treatment of investors was "disgusting", adding: “Too many businesses think they can shove everything in the small print, surround it with confusing jargon and still label their actions as ‘transparent’.”
Gina Miller from the True and Fair Campaign, which has long lobbied for greater transparency, said this exploitation of pension savers was a "national scandal" and called for a full inquiry from the Competition Markets Authority. She concluded: "The weight of evidence is now undeniable. Full transparency on all costs and fees in one number must now be implemented.
The Investment Management Association (IMA) said that having a cost disclosure that was detailed, comprehensive but also understandable was no simple task, but pointed out it had developed a new measure which would tell investors, in pounds and pence, exactly how much a unit in a fund grew over the course of a year and how much that performance cost.
Daniel Godfrey, Chief Executive of the IMA, said: “Pounds and pence disclosure goes beyond any regulatory or legal requirement and is a big step forwards for consumer understanding. We expect it to be in place next spring, but there is more to do. The IMA will also amend our codes to require clear and simple disclosure of research costs where these are met from dealing commissions paid by funds.”
Britain’s fund management industry was worth £5 trillion in 2013, with roughly £1 trillion coming from retail investors and £1.4 trillion from pension funds.
The FSCP will hold a meeting with stakeholders in the New Year to discuss the findings of its research along with potential solutions.
More on investment:
Virgin Money: should you buy shares?
Mid-caps outperform blue chip rivals
Comments
Be the first to comment
Do you want to comment on this article? You need to be signed in for this feature