Calls for greater clarity on the costs of investing are getting louder and gaining a favourable hearing both in the media and within Westminster.
Although it is easy to be cynical about the agenda of some of those campaigning against “hidden charges” and the almost hysterical presentation of cost calculations being fed to the press, it would wrong to dismiss the demands for increased transparency.
Former New Star chief investment officer Alan Miller, now a partner in wealth management firm SCM Private, is calling for a new code of conduct and fee labelling system.
The firm calculates that £18.5bn is paid in dealing costs associated with retail and institutional investments each year. Its list of demands includes a clearer breakdown of charges such as all dealing, custody and administration costs and for all charges to be added to give a total provider cost.
In response, the Investment Management Association points out that dealing costs are reflected in the net overall performance of the fund and suggests calls for increased transparency of such costs may mislead investors into thinking they matter in isolation from their impact on returns.
There are a few question marks over the calculations behind the £18.5bn figure but its accuracy is of secondary importance to the issue of charging transparency.
At present, such dealing costs are disclosed in a fund’s report and accounts but there is no reason why they should not be made more readily available to investors in the way suggested by Miller, and others, such as Fidelity.
By their nature, dealing costs are going to be historic and not always representative of future charges but, when set alongside other costs and performance data, add another insight for investors to consider.
There will always be concerns that such costs overshadow the most important figure for investors – performance net of all charges. But to suggest investors should be protected from too much information is to misread the public mood.
Good active managers should be prepared to argue for the long-term value they add with their investors’ eyes fully open to the underlying costs involved in providing these returns.
Well-made arguments about the dangers of a fixation on costs at all costs will never truly be won if there is a perception among investors that certain charges are being hidden from them.