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Fee radicals

Peter Hargreaves is always good for a quote. I came across an article in the Evening Standard penned by former Money Marketing journalist Simon English, which quotes Hargreaves as saying: “The high street banks that are supposed to help businesses have always been run by completely inane, affable twits.”

With stockmarket analysts applauding its balance sheets and rising dividends, Hargreaves can afford to be outspoken and smug.

He has been equally dismissive of the FSA’s plans of fees for platforms and when the regulator announced its desire for transparency, he came up with another very quotable line. He says customers do not care how much it is paid, they just want to know the total cost of investing. “Consumers want to buy beans – they don’t care what margin the retailer has,” he said.

Initially, I was not convinced he was right on this point. It is why I would like to stick him in the ring with Terry Smith, the boxing-mad son of an East London bus driver. Smith is another who never disappoints when it comes to airing his views.

“I can not think of another area of human economic activity where the internet has put an extra intermediary between the provider and the customer,” the maverick City veteran was reported as saying. “Investors think fund platforms are saving them money. Really? Grow up. That’s why fund managers can not cut their fees. If a platform is taking 0.75 per cent off you – and that is what the big platforms are taking – it is a bit difficult to only charge 1 per cent.”

The lack of transparency on fees has long been a problem – so too has the level. Fee levels have come under increasing scrutiny in the past year or so, which is often the case when markets are volatile. Several fund managers who have built their careers on the back of actively managed funds have become turncoats to advocate cut-priced passive investing.

You are never convinced whether or not backhanders are being accepted by fund platforms or by financial advisers to push certain products. Of course, any suggestion of such a notion is strongly rejected.

It was perhaps no surprise that straight-faced Fidelity stole a march on its rivals and published the breakdown – it sent me a 42-page document with all the details – ahead of the intended deadline when such a breakdown becomes mandatory.

I flicked through the pages hoping to find discrepancies and name and shame the most expensive fund managers – those who pay Fidelity more to push their wares – but I was to be disappointed.

A handful of funds charge a hefty 2 per cent and offload 0.875 per cent to Fidelity. These include Gartmore UK alpha, Henderson European and global focus, Neptune global alpha, Prudential global growth trust and three portfolio funds offered by Scottish Widows.

There is little difference between the rest, with most charging the usual 1.5 per cent for actively managed funds and giving up half to Fidelity.

Fidelity justifies the 0.75 per cent charge for the services it provides its one million customers, from fund information to a telephone helpline. It gets more than 600,000 visits to its website from existing customers, suggesting a level of servicing does exist – and we cannot expect that to come free.

Transparency is important and Fidelity’s move, laudable though it is, is only useful if it helps people sort the wheat from the chaff – to see if they are getting value for money or being ripped off. If rivals mirror Fidelity’s fees, with everyone charging the same, then Peter Hargreaves might have a point.

Paul Farrow is personal finance editor at the Telegraph Media Group

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