Legal & General is set to hit investors in its £1bn fixed-interest fund with a double whammy this December when it hikes its income-deducted annual management charge by 50 per cent.
It is warning IFAs it is raising the charge to 0.75 per cent from 0.5 per cent in a bid to cover the cost of running the actively managed fund, which it says has been priced in line with an index tracker. As L&G takes charges from income rather than investors' underlying capital, it means the fund's yield will also be hit, falling to 4.23 per cent from 4.48 per cent under current levels.
The company says the fund will still be within the Cat-standard price framework it champions but IFAs argue that it is effectively forcing investors to pay higher charges for less income. L&G says it can no longer afford to maintain the fund's performance under the existing charging structure. It is the eighth-best performing bond fund over three years.
Head of investment sales (discount houses) Marie Banfield says: “It has become impossible to continue running the trust on this basis due to the active fund management and research required to meet the trust's objective.”
Hargreaves Lansdown senior analyst Meera Patel says: “It is not good news for investors by any means because they will be paying more for less income but the fund's charge is still relatively low.”