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Fund costs still major issue

Moira O'Neill

Fund costs still major issue

In spite of much publicity at launch two months ago, a campaign for greater fund charges transparency (www.trueandfaircampaign.com) has only 293 supporters so far.

Investors know that the fund management industry charges too much and could be much more transparent on fees. It has been impossible to avoid this following lots of noise from Alan Miller (behind the above campaign) and the launch of Fidelity's own fund fees campaign, all backed up by research on the shocking cumulative cost of fees from TCF Investments.

But is this noise on fund fees just the "cheap PR trick" that Hargreaves Lansdown claims it is? "Transparency of charges is an issue but not a major one," says Tom McPhail, pensions research manager at Hargreaves. "Can it be that most investors aren't that interested?"

Most investors, frankly, don't know that they should be interested. In fact, charges are the one thing that investors should be able to control. But control is impossible if there is no transparency.

How can investors get a true picture when the funds industry often hides the total expense ratio (TER) – the best, albeit flawed, measure of the total cost of investing in a fund – deep in the fund's supporting literature rather than placing it up front on the fund factsheet? Some funds only disclose the annual management charge, which is only part of the total fund charge. This is deeply frustrating.

However, comparing costs doesn't stop at the fund factsheet. Making a like-for-like comparison when purchasing funds on different fund platforms is also tremendously difficult and time consuming.

Research by InvestorBee found that consumers could be paying more than double the best available fee for a fund investment if they don't shop around. InvestorBee compared four identical investments on eight of the UK's leading platforms (Fidelity FundsNetwork, Selftrade, TDWaterhouse, Alliance Trust, Bestinvest Select, Hargreaves Lansdown, Barclays Stockbrokers, The Share Centre). They discovered that the total fee for buying the same investment can vary by almost double (83 per cent) depending on the platform you choose.

So you still have to do your homework on charges. Maybe it is time to sign up to that campaign.

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