The Investment Management Association has released research that aims to dispel criticisms over “hidden charges” in investment products.
In November, TCF Investment chief executive David Norman published research claiming investors are paying £8bn annually in hidden charges on their investment products. He said fund managers only clearly disclose the investment management component of fund costs rather than total running costs including transaction charges.
The IMA has analysed the fund accounts of 129 active and passive funds in the UK all companies sector.
For the actively managed funds, the transaction costs were 0.31 per cent of average assets and in tracker funds, transaction costs totalled 0.06 per cent.
The IMA compared the annual difference over a 10-year period to December 2011 between the return on the benchmark and what the investor would have received after charges.
For the tracker funds, the total expense ratio was broadly the same on average as the difference between the benchmark return and the fund return. The IMA says transaction costs account for the difference. nIt adds that transaction costs were more than covered by the investment returns from active management.
IMA chief executive Richard Saunders says: “The IMA’s figures demonstrate clearly that so-called hidden charges which cost investors billions a year are a complete myth. If the accusation were true, it would show up in the net returns achieved by investors.”
Norman says funds’ transaction costs should be clearly disclosed in the key investor information document. He says: “Very few investors or consumers will discover the trading costs as they are only disclosed in funds’ annual reports and accounts, not in the key features document or simplified prospectus.”
Values for Vision Financial Planning director Nick Lincoln says: “The true total expense ratio, including transaction charges, should be put in the fund factsheet.”
Fidelity Worldwide Investment has called for an industry standard approach to disclosing the total cost of the fund while SCM Private head Alan Miller is launching a new code of conduct to tackle fund fee transparency after research from the firm suggested dealing costs alone account for £18bn in hidden charges each year.