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Blood on the trackers

Trackers with initial charges have been responding to Fidelity’s suggestion that investors are overpaying for their funds.

Fidelity listed seven tracker funds with initial charges in its announcement last week that it is to drop the annual management charge on its Moneybuilder tracker to 0.1 per cent, dropping its total expense ratio to 0.3 per cent.

The Eagle Star UK index tracker, with an initial charge of 5.5 per cent, was a unit trust and part of Eagle Star Unit and Isa Managers, sold to Threadneedle in April 2003. It is no longer being actively marketed to investors.

The Sovereign FTSE 100 tracker, with an initial charge of 2.5 per cent, is now marketed by Teachers Provident. Sovereign’s fund management was outsourced to L&G at the beginning of September although an L&G spokesman had not heard of the move and could not comment. A spokesman for Sovereign says there are no plans to drop the charges on the product.

The Scottish Mutual all-share index tracker, with an initial charge of 5.25 per cent, is now owned by Abbey. Abbey chief investment officer John Kelly describes it as “an internal fund”, and says Abbey investors wanting a FTSE tracker will be sold the Abbey FTSE 100 fund, with 0 per cent initial charge and 0.35 per cent annual charge.

Kelly says: “I do not think that Fidelity have done quite as much investigation as they could have done. This is an internal fund – it has a high up-front charge and a 1m minimum investment but it should not be used as part of a survey because it is used for internal purposes, when we tend to waive the fee. Its high up-front charge is a polite way of running in-house money because you cannot technically close an open-ended fund but this is not aimed at retail money.”

Fidelity head of communications Richard Miles claims that just because these funds are no longer marketed does not mean they are no longer there. He says the figures were collated through information in the public domain and are intended to get people thinking about the costs of trackers. He says the firm has been thorough in working out who has charged what.

St.James’s Place would not comment on its 3.75 per cent tracker initial chargeA spokeswoman for Clerical Medical says there are no plans to review the 3.5 per cent initial charge on its FTSE 100 tracker fund, but that the fund’s annual charge remains competitive.

Credit Suisse charges an initial 3.25 per cent on its FTSE 100 tracker. Credit Suisse product development director Toby Hogbin says: “An annual charge of 0.1 per cent is extremely attractive but there are a number of factors that investors need to con- sider, such as the efficiency of tracking, the service provision, and there is also the fact that if you are receiving advice to go into the fund, how is that going to be paid for?”

Asked whether 325 is a reasonable amount to pay to be advised to put 10,000 into the firm’s tracker, Hogbin says: “IFAs provide a range of services. If you have had a holistic set of advice, including a fact-find and mortgage advice, then as a percentage it is extremely reasonable. To look at just the charge is short-sighted.”

L&G spokesman Mike Connolly says the firm’s 3 per cent initial charge when bought through Alliance & Leicester branches is reasonable because it is used to cover other costs.

Connolly says: “Where we get into charges where a bank branch is concerned, they have to allocate a certain amount of the charge to pay for fixtures and fittings, light and heat, and so on, which do not normally appear in tracker charges. In that sense, these charges are fair.”

Fee-Based Solutions IFA Scott Taylor feels it is unreasonable to continue including the fee for advice in product design. He says a 3.25 per cent initial charge on a tracker fund typifies an “over-cosy relationship between the advice community and product providers”.

Taylor says: “If a client wants to pay an IFA for advice, they can give their adviser a cheque. We just do not believe in building charges into products. Fidelity are brave to drop their tracker charges, because those providers who maintain charges on their products do so because they want to continue controlling their share of the market.”

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