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Categories:Investments

Bestinvest calls for greater transparency following IMA research

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Bestinvest has hit back at the Investment Management Association 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.

Bestinvest senior adviser Adrian Lowcock (pictured) says: “What the IMA seems to be focusing on is whether the funds are expensive and offer fair value, but the issue for investors is they cannot work out whether funds are expensive because they are not told what all their charges are and what exactly they are paying for. Charges are not clear or transparent.”

He adds transparency of charging structure applies to advisers, platforms and fund managers at every level of the investment transaction.

Lift Financial joint chief executive Joel Adams says: “No hidden costs would be expected. The IMA has calculated the total expense ratio, but investors cannot have a flat charge when transaction costs on a year-on-year basis are very different because of portfolio turnover costs. I would be interested to know whether those costs are absorbed or retained by the fund manager.”

A spokeswoman for the Investment Management Association says: “We have taken an average transaction cost over a 10-year period to December 2011. In terms of the portfolio turnover rate, the transaction costs are based on the number of buying and selling decisions and the manager makes them in the interest of getting a better return.”

She adds: “Cost of investing is pretty much equal to TER because trading costs are negligible.”

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Readers' comments (3)

  • What are we a charity? Lets get off high horses here we all have to earn a living and if that means that clients have to bear a cost of investing so be it. Since when do clients was a full breakdown of charges. Not one of my clients have ever requested this and I joined the business when it was a lot of fun back in the late 80's. They all know they are taking a risk that fund values fall and rise and when it is explained that over the longer term there will be times when their funds drop but this is a cost borne by them to get the potential the investments offer. If the costs werent there, the provdiers couldnt make money and guess what? The providers wouldnt be there so what could we advise clients to do. We would have to charge them for the following advice. Mr client you need to go to the bank to put your money in a 5 year deposit bond. Now that will be £350 please for the fact find and the advice. Now that would be a great situation to have wouldnt it? Stop harping on about costs, get off your asses and get out there and sell investments to your clients to start creating long term wealth you morons.

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  • Dear me, advisers like you still exist then?? The real morons are your clients.

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  • Everyone and anyone can have a pop at fund managers, however, one truth remains: all providers list their charges in line with both EU and UK law. It might not be the most transparent method of disclosure but it is uniform.

    Instead of lobbying the providers, the industry needs to lobby the FSA to make this change. If charges are going to be disclosed this needs to be done on a uniform basis. If you were running a fund management firm, would you want to be the first one to effectively increase charges against your competitors who don't? Also, all of the reduction in yield figures (etc) have to be based on the TER, which can't currently include these 'hidden' costs.

    Until there is a legal intervention there is no practical way of changing current disclosure.

    While I agree full disclosure is always best, there may be consequences that shouldn't be ignored. In an industry that over burdens itself with costs (rather than quality in my opinion), management firms may try and look good by reducing transaction costs and being less active in the market. Clients could end up with a quasi-tracker, which wouldn't be good for anyone!

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