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Dragging their feet: Fund groups under fire over charges disclosure


The investment industry faces renewed attacks over charges disclosure as Money Marketing research lays bare the shocking lack of progress made in boosting transparency.

Two years after Money Marketing first raised concerns about the confusing charges landscape facing investors, new analysis reveals some fund managers are still not using the industry-agreed ongoing charges figure in fund factsheets.

Exclusive analysis of almost 5,000 funds carried out by investment platform AJ Bell shows managers continue to use a variety of figures to communicate costs to advisers and investors.

According to the data, 187 of 4,773 funds had no OCF, while 3,143 had no total expense ratio and 74 funds did not disclose either an OCF or TER.

This compares with 2014 when the same research showed 192 of 4,000 funds had no OCF, 2,767 had no TER and 73 funds did not have either.

Additionally, of the 317 funds launched in the past 12 months, 35 did not show the OCF.

So, despite industry initiatives and mounting regulatory and political pressure, why are fund managers still unable to agree on a single charges disclosure figure?

“How can a consumer make any rational decision about what fund to buy if they don’t know what they are paying?”


Stonefish Consulting managing director Chris Sier says the failures exposed by the research are unacceptable.

He says: “This is absolutely preposterous. How can a consumer make any rational decision about what fund to buy if they don’t know what they are paying? When you only see performance how can you make a rational judgement?”

AJ Bell marketing director Billy Mackay adds: “Post-RDR the focus for advisers has been on clearly illustrating the total cost of ownership to investors and the fund cost is an integral part of this. The lack of consistency around the metrics used to show fund costs makes like-for-like comparisons of the total cost of ownership very difficult.

“In an industry that is one of the most heavily regulated in the world, it is surprising that something as simple as how to show fund costs is not mandated and consistent across the market.”

In 2014, the FCA called on firms to scrap annual management charges in favour of the OCF figure amid concerns firms were failing to display fees “clearly and consistently”.

Hargreaves Lansdown senior analyst Laith Khalaf says: “I wouldn’t be surprised in the not too distant future to find a total cost of ownership figure superseding the OCF in the same way the OCF took over from the TER.”

One senior industry figure, who asked to remain anonymous, says it is in the industry’s interests to maintain a veil of secrecy over fund charges. The source says: “It makes people less price sensitive if advisers and investors can’t get to the bottom of what costs are.

“If it is working pretty well for the industry, why would they change?”


Still ‘a mess’

Gbi2 managing director Graham Bentley believes the inconsistency in charges disclosure is born out of “laziness” from fund groups, distributors and research firms. He says: “It’s a mess. All three of the contributors to this process – fund managers, the fund data providers and distributors – are equally culpable of not having a consistent way to illustrate what the charges are.”

The Investment Association has spent the past three years attempting to improve the way charges are presented to consumers.

Former IA chief executive Daniel Godfrey spearheaded this transparency drive before he was unceremoniously ousted from the organisation in October. He says: “It is intolerable if fund groups publish factsheets where it just references the annual management charge and not the OCF. You wouldn’t have this problem if the industry agreed on a single universal figure.”

Fairer Finance managing director James Daley says the industry simply has “no appetite” for reform and will “fight as long as possible” to maintain the status quo.

He adds: “Advisers should take a hard line with providers and tell them they won’t do any business with them if they are not clear on charges. Advisers should use their influence as they have got the power to tell providers what to do.”

The issue of charges is further complicated by the fact some funds have different share classes with different charges for different distributors, experts say.

Thomas and Thomas Financial Services managing director Darren Lloyd Thomas says: “What has changed over the last two years is clean share classes coming into play. So you can pay some quite different fund prices depending upon which platform you go to. That is a minefield because you get different deals, so that adds to the complexity.”

In the passives space, charges misreporting could be more evident, Thomas adds. He says: “The tracker funds may have low fees but when you dig underneath the fee you find there are other costs in there, so the  TER could be quite different.”


Research costs clarity

At the same time some fund groups, such as Legal & General, have already decided to show a single charge combining the annual management charge and variable extra expenses.

Invesco Perpetual also combines registration fees and fund administration costs in one figure, while Baillie Gifford, First State Investments and Woodford Investment Management have stopped charging for the cost of research of their funds.

Woodford chief executive Craig Newman says: “Ultimately the investment performance, net of all costs, is what investors are interested in. But we also want investors to be able to see the total costs taken from the fund – how much we have to pay to buy and sell stocks within the portfolio, and how much we have to pay in subsequent taxes, for example. Research costs are a function of our role and it is only right Woodford, not our investors, pay for it.”

However, consumer advocates will likely need more convincing before relenting in their pursuit of transparency.

Daley says: “The investment world is very large and has thousands of fund groups. Not all the thousands are bad – there are maybe 100 that are good and making progress.”



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Cracking new phrase I might have to start using – “over-transparency”.

  2. @ Tom Kean – you beat me too it. People do not want to know all the ins and outs of every single item on a fund.
    Why would it not be so much better to force all funds to publish their performance (or lack of it) after all charges have been deducted. If a fund is run so well that it delivers 10%pa net of all charges year on year doest it really matter if the fund charge was 3%pa? Not in the slightest. If it lost 5%pa year on year net of charges the same principal applies. People are not interested in what it costs to invest, they are only interested in what it actually does. The regulators paranoia about transparency is a ludicrous situation, which has no benefit to the end user.
    Would you prefer a fund that makes you a lot of money for which you pay more for, or would you prefer a mediocre fund that you pay less for and get a lot less back. Like everything else in this life you only get what you pay for (apart from the FCA where it costs advisers a fortune and gives little for its charge)

  3. Every fund has to have an KII, every KII has an OCF. How do funds not publish OCFs?

  4. Pete Armstrong 8th April 2016 at 2:18 pm

    @Marty Y – agree, investors only want to see their ‘net % return’. Any guideline should list the costs to be deducted from the returns to ensure level comparison can be made.

  5. David Cathcart 8th April 2016 at 4:27 pm

    Whats wrong with the FCA, if advisers were that indignant when RDR was introduced then fines would have been handed out like confetti. Give the IM’s a date to fully comply and if don’t fine them and publish the names of the offenders in the press.
    Here’s hoping

  6. We got the guys at Datalaya to run some OCF analysis across the funds and platforms we use. The results were revealing. Even ‘popular’ funds had different OCFs across different platforms. NOT post discount/rebate but PRE discount/rebate/platform charge. These figures went on to auto produce the pre sales documents we all need to certify to have seen as per Mifid rules! Since most mainstream funds produce KII docs on a frequent basis I was staggered at the appalling data management at providers, data vendors and platforms! Truly misleading to the average punter.

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