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Nic Cicutti: Where is the FCA on charges disclosure?


I do not suppose many readers of Money Marketing remember Tim Miller. For those who do not, before his untimely death on a car race track some 15 years ago, Miller was one of the industry’s most highly successful marketing strategists.

I first met him at one of the many “meet and greet” events for new MM journalists shortly after joining the paper at the start of 1992.

Back then Miller’s skills were hugely respected. Among the many funds he helped launch down the slipway as group marketing director at M&G was its Recovery fund, still one of the group’s flagships with over £4bn under management.

A few months after I met him, however, Miller was defenestrated following an internal review he had personally initiated. Miller eventually went on to help create another successful operation, Portfolio Fund Managers, which was eventually swallowed up by Edinburgh Fund Managers and then Aberdeen Asset Management.

But in a typically energetic – and contrarian – style, before helping to set up PFM Tim briefly went to work for “the enemy”. Within a few months of leaving M&G he was taken on by the Personal Investment Authority as a consultant, advising the regulator on mechanisms to improve charges disclosure for consumers.

For those of us who have experienced the incredible progress of online tools in the past decade or so, it is hard to imagine how difficult it was to provide this kind of information for policyholders and investors back then.

Not only was detailed charges information not widely available, but presenting it in a simple and comprehensible manner that could be understood by the majority of consumers was also a nightmare.

Miller’s solution was to look at charges as a function of their effect on total returns. He also tried to present this information in a more pictorial way, using graphs rather than words to explain the impact of charges over the lifetime of a savings pot.

Unfortunately for Tim, although some of his ideas have gained substantial traction since that time, the graph-based illustrations did not prove to be the panacea he hoped, in large measure because the technology was not there to allow meaningful product comparisons on this issue.

Even so, Miller’s contribution to the long-running debate on product disclosure remains important, not least because it strikes me this is one area today’s regulators seem less focused on than the old ones ever were.

Back then, there was an argument that statistical information on persistency, charging structures and the like were essential ingredients in successful product choice – along with performance. This was needed to be won against sceptical industry insiders, many of whom had a clear financial interest in ensuring such information was not widely disseminated.

Today, those debates have largely been won – or have they? Every time we think we have resolved issues relating to more effective product comparison, the market throws a curve ball at us. As I described last week, a combination of circumstances has meant investors are being drawn to drawdown products as a seemingly simple means of accessing some of their tax-free pension assets.

The problem is many drawdown products were created for a more sophisticated market, moreover one where advisers played a central role in researching the best options for their clients. Yet advisers are either being side-stepped by prospective clients or are themselves vacating the field on this issue.

There is a growing need for the FCA to step in and come up with a simple solution that allows consumers to make reasonable assumptions in relation to charges with respect to drawdown products.

A similar picture emerges in the area of transaction charges for investment funds more generally. Over the past three years, the IMA, now the Investment Association, has laboured to create a new structure for fund disclosure which is meaningful for millions of consumers who invest in its members’ funds.

In February, the IA published a 66-page position paper on the issue, which I have read several times in the intervening months in a bid to understand its proposals. I can now just about make out what the paper is on about. Imagine what it would be like for a “normal” consumer to understand the difference between annual management charges, ongoing charge figures or total expense ratios and how to compare them against each other.

Yet for now the FCA seems, in public at least, to be standing aloof from the discussion which has now rumbled on interminably. It is almost as if the regulator has itself become befuddled by the many different options on the table.

It is time for this to stop. A growing number of so-called “DIY investors”, not to mention advisers who want to do the best job for their clients, need a single reliable and accurate solution to the issue, sanctioned and approved by the regulator.

All fund providers should be compelled to provide information on a similar basis, enabling research firms to offer meaningful product comparisons both to advisers and consumers. Compared with Miller’s times, the technology exists today to make the task much easier for all of us. The FCA needs to bang heads together to make it happen.

Nic Cicutti can be contacted at Follow him on twitter @NicCicutti



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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Nic, the answer is that it’s out of the FCA’s hands. If you look at ESMA’s technical guidance on MiFID II, section 2.14 “Information to clients on costs and charges”, you will see that the subject is addressed in detail. The level of disclosure required goes beyond any simple notion of TER. Indeed, I’m surprised it hasn’t had a lot more press…

  2. Why was Tim Miller thrown out of a window ?

    • “Defenestrated” is commonly used to mean “sacked” or otherwise brutally ejected by people who have English A-levels and want you to know it.

      I did like the sentence “A few months after I met him, however, Miller was defenestrated following an internal review he had personally initiated” because it illustrates one of Sir Humphrey’s golden rules.

      Never commission a review without knowing what the result will be beforehand.

  3. Never commission a review without knowing what the result will be beforehand. Indeed. A maxim followed religiously by the folk at Canary Wharf. Responses to a prior “consultation” are “taken on board” but never actually acted upon.

  4. This is all a result of smoke and mirrors in the name of transparency. There is a very easy way to sort this out and that is to have 1 standard figure that shows all of the charges of the fund as 1 clear and easy figure. For example on the fund sheets it could state “For investing in this fund, the total charge each year will be 1.8% (or whatever) of the value of your investment. So if your investment was worth £10,000 the total charge would be £180″
    It really could not be any easier and then even the DIY’ers should grasp that.
    Why won’t the regulator accept that clients (and DIY’ers) do not care one iota about how the total figure is arrived at and to be honest do not actually need to know. They only care and need to know what the final figure is. What difference does it make if one company has AMC of 0.9% OC of 0.5% other expenses of 0.4% and another company has 1.0%, 0.75% and 0.75%? This only adds to the confusion. If they simply expressed it in a simple terms, say….”This fund’s total annual cost is X” it would make everything so much more understandable for all concerned. Problem is the powers that be work on the principle that it needs to be complicated in order to justify their existence in chastising those nasty providers and advisers for not explaining things properly to the unsuspecting population.

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