Leader: Uncomfortable questions in the pursuit of clear fund charges

Natalie Holt

The journey to make fund management charges subject to proper scrutiny has been a long and often torturous one.

Back in 2013, the FCA warned of complex, hidden fund management charges that made comparisons difficult.

The Consumer Panel joined in on the act the following year, declaring it was “unacceptable” fund management costs were not being properly disclosed to investors.

Around the same time, the FCA pushed firms to emphasise the ongoing charge figure and scrap  annual management charges altogether. Keen to be seen on the right side of the consumer, a couple of individual fund groups either removed AMCs or sought to stress the single ongoing charge figure, namely Invesco Perpetual and Woodford Investment Management.

And it is a trend that continues today, with Legal & General Investment Management just last month deciding to unbundle fund research costs across its active range.

Yet the clamour for greater transparency continues.

Part of the problem is neither the OCF nor the TER discloses all costs. In that unique approach to jargon that is particular to financial services, the total expense ratio is not the total cost at all. It covers depository fees, registration fees and performance fees, while the OCF strips out the performance fee if any applies. Both do not include entry or exit charges, interest on borrowing, brokerage charges or dealing costs.

So, clearly, full transparency is still some way off. Yet there is another side to the transparency equation, and that is whether it can actually be delivered in practice.

Policymakers in Brussels are working on pan-European rules to improve consumer disclosure on investment products, but the scale of the challenge ahead means new rules are likely to be delayed until at least 2018, if not later.

This has had a knock-on impact on the UK timetable for disclosing transaction costs.

So why does all this matter, and why now? The simple answer is because this is not just a fund management issue. The bodies tasked with ensuring pension schemes are delivering value for members cannot do their job properly without having all the relevant information at their disposal in an easily digestible format.

The challenge is whether fund groups give a full charges breakdown willingly or grudgingly, or indeed at all. And if all charges are laid bare, there be uncomfortable questions about why it is the end investor, rather than the fund group itself, that it is footing the bill for the myriad fees being imposed.

Natalie Holt is editor of Money Marketing. Follow her on Twitter: @Natalie_Holt_MM