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Fund managers’ fees outed as Mifid II disclosure rules take effect

Some fund managers’ costs have been shown to increase at least two times beyond the ongoing charges figure, as Mifid II rules around fee disclosure take effect.

According to research by the Financial Times and the Lang Cat, the cost of investing in funds run by investment giants including BlackRock and Vanguard can double once transaction fees are included alongside the OCF.

Under Mifid II, which came into force on 3 January, fund houses must disclose all charges relating to a product to investors upfront.

The research found that once platform and performance fees are included costs can be up to four times higher than the OCF.

Providers review adviser marketing amid Mifid II inducements confusion

The research gave the example of the Henderson UK Absolute Return fund, which has an OCF of 1.06 per cent and transaction costs of 79 basis points, which takes the total cost of ownership to 1.85 per cent. However, if a performance fee and a platform fee is incurred – the research used Hargreaves Lansdown as an illustration – then the total cost increases to an average of 3.82 per cent.

It should also be noted that the Henderson UK Absolute Return fund is the only one out of the 20 funds analysed with a performance fee; it has an incidental charge of 1.53 per cent. This only applies if the performance hurdle is reached.

Seven of the 20 funds analysed did not charge transaction fees, however the Lang Cat says it is unclear if that is actually the case or if those costs are being met from company profits rather than borne by the fund.

Lang Cat consulting director Mike Barrett says: “No-one’s charges have actually gone up. Investors have always been paying these fees, it’s just that the fund groups now have to tell you what they are charging.”

He adds: “It’s taken EU regulation to get this out in the open, rather than transparency being the default position. Now we’ve come this far, we also need those firms who are disclosing a zero cost to explain the basis of their assumptions.”

Elsewhere, Money Marketing reported last week that an FCA panel set up following the regulator’s asset management market study tasked with creating a template to improve charge transparency is to start testing a draft version in the coming weeks.

Chair of the institutional disclosure working group Chris Sier says the template testing will be followed by a public meeting in February where the working group and other FCA staff will discuss the results of the testing with a wider group of asset managers.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Am I missing something?

    “The research gave the example of the Henderson UK Absolute return fund, which has an OCF of 1.06 per cent and transaction costs of 79 basis points, which takes the total cost of ownership to 1.85 per cent. However, if a platform fee is incurred – the research used Hargreaves Lansdown as an illustration – then the total cost increases to an average of 3.82 per cent.”

    1.85% TCO & 0.45% HL platform charge = 2.30%, not 3.82%?

  2. Please note, “It’s taken EU regulation to get this out in the open”.
    Once we leave the EU there will be quite a few instances where the friends of the Conservative party will keep things hidden; as they do with offshore investments which, I gather, the UK refuse to co-operate with the EU in taking action on.

    • I was thinking along similar lines Patrick; why has it taken this directive to uncover the true costs? TCF and transparency have been working for a fair few years now and surely all of this information is disclosed in their regulatory reporting (isn’t it?). I wasn’t too concerned before, but now I can see why people were getting hot under the collar about it!

  3. However I would make the observation that costs covered by the company are not disclosed, however clearly ultimately they still have to be paid for by the clients.

    So in reality some are now being transparent, others are using different options, so it’s still impossible to provide any meaningful comparison, making the whole point rather moot.

  4. It is increasingly looking like the only way of knowing the true costs of a fund is to have an independent third party check all the costs, compare them on an identical basis and then publish them. Otherwise, what’s the point if we’re still comparing apples with pears?

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