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.
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.