Alan Miller: £18bn of "hidden" dealing costs each year
SCM Private is launching a new code of conduct to tackle fund fee transparency after suggesting investors are hit with over £18bn of “hidden” dealing costs each year.
SCM says the True and Fair Code and Labelling Scheme will force the savings and investment industry to adopt 100 per cent transparency of fees and investments.
The firm, which is headed by former New Star chief investment officer Alan Miller (pictured), says the new code would provide potential investors and savers with a “full and clear” schedule of fees and an all-in-one cost for investment.
SCM Private looked at all the Investment Management Association UK retail funds, which are estimated to be worth £560bn, and found the average turnover of the funds was 65 per cent. SCM then looked at the average across all these funds invested in UK equities, bonds and other assets and applied the typical dealing cost in each asset category to estimate an average dealing cost of 0.73 per cent. SCM then took the £560bn and multiplied it with the average turnover figure and the average deal costs to calculate that dealing cost for retail funds stood at £2.7bn a year. Doing the same calculation for the entire investment management industry in the UK, which the IMA says is £3.9trn, the figure then rises to £18.5bn a year.
SCM proposes the total cost of investment would be published on a quarterly basis online. The firm says it would cover Isas, pensions, unit trusts, exchange traded funds, hedge funds, investment trusts or any other investment products. SCM says the move would limit “future scandals” by improving transparency.
The code would see any company committed to providing clients with a full breakdown of all fees incurred during the investment of their money, including management fees and all underlying costs or charges. The company also commits to providing clients with a full online breakdown of all holdings held directly as well as indirectly, such as individual assets held as collateral against securities lent out, together with a full percentage breakdown, at least quarterly – wherever possible as at last night’s close.
Independent research by SCM shows 19 per cent of savers and investors currently know how much they are being charged, while 83 per cent have called for a full disclosure of their investments and 89 per cent want a full breakdown of their charges. The survey also shows 63 per cent of people would be “more likely” to invest if they knew where there money was invested.
SCM co-founder and chief investment officer Alan Miller says: “In 2000, an FSA commissioned research paper found that in the UK only half the overall fees and costs were disclosed to investors. 11 years later precious little has changed. The industry falls shamefully short of the full quarterly investment transparency that has been mandatory in the US since 2004. We believe that if there was better product description, accuracy and a consistent industry format, investor confidence and trust could be rebuilt, and the savings inertia tackled. “
The launch of the new code comes soon after Fidelity Worldwide Investments called on the asset management industry to create an industry standard in a bid to offer to greater transparency for fund charges.
Meanwhile, Bestinvest hit back at the Investment Management Association last week after it released research which claimed there were no hidden fund cost charges.
The trade body 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, of which two-thirds was accounted for by stamp duty. In tracker funds, transaction costs totalled 0.06 per cent.