The scandal of hidden charges

Aegis

kennyboy66 wrote: »

What percentage of fund managers outperform their index over say a period of 5 or 10 years ?

Enough for me

Tiggs_2

A large part of the pensions crisis is down to people in this country believing that theres a huge safety net that will always catch them...doesn't matter if its getting pregnant at 12 or reaching 65 with no pension - someone will step in and help out. If people knew that no private savings meant living under a bridge at 65 they'd re-think their priorities....as it is, the average pension pot at retirement is woefully short because of lack of funding, not charges. I meet far too many people with a plasma TV and pensions shortfall......ironically, when asked why they havent bothered saving they will often say "cause them pensions, they're all rubbish int they"

The Tory suggestion of age 66 sums it all up....state pension should be a fall back benift....it's not, it's viewed by many as their ONLY means of living after work - hence they regard it's delay to age 66 as a big deal.

Tiggs

(no one without a certain a ratio of savings to age should be allowed a TV over 32".....Tiggs pension crisis solution )

EdInvestor

sabretoothtigger wrote: »

Stamp duty isnt payable because its paid by the funds themselves, that is part of their costs.

It is passed on to the investor as part of the hidden charges.

There is management fee but better to look at TER or total expense ratio which includes cost of dealing as well

TER does not include dealing costs.That's the problem.

Investors are told to look at the Reduction in Yield figure as a way of judging the impact of fees and charges on pensions and investments.

The RIY does not include the hidden charges either.

It's pretty obvious why not, isn't it?People would be shocked if they knew they were paying 3.8% in charges when they had always thought 1.5% was expensive.

Richard_DandR

The dealing charges are not hidden. The FSA set out how the TER is calculated:

http://fsahandbook.info/FSA/html/handbook/COLL/4/Annex1

EdInvestor

The total operating costs do not include: - transaction costs which are costs incurred by a simplified prospectus scheme in connection with transactions on its portfolio. They include brokerage fees, taxes and linked charges and the market impact of the transaction taking into account the remuneration of the broker and the liquidity of the concerned assets; - interest on borrowing; - payments incurred because of financial derivative instruments; - entry/exit commissions or any other fees paid directly by the investor; - soft commissions in accordance with paragraph 4.

sabretoothtigger

Well maybe they should include everything in ter at least retrospectively, does seem a bit confusing

hl wrote:

Total Expense Ratio
The Total Expense Ratio (TER) represents the total annual costs involved in running a fund. The TER consists principally of the manager's annual charge, but also includes additional costs for other services paid for by the fund, such as the fees paid to auditors, registrars and the financial press.

American definition is different?

What Does Total Expense Ratio - TER Mean?
A measure of the total costs associated with managing and operating an investment fund such as a mutual fund. These costs consist primarily of management fees and additional expenses such as trading fees, legal fees, auditor fees and other operational expenses. The total cost of the fund is divided by the fund's total assets to arrive at a percentage amount, which represents the TER:

EdInvestor

Former New Star fund manager joins attack on hidden charges along with pension consultants Watson Wyatt and Hermes.
Total charges eat up 40% of people's pension pots.

http://www.guardian.co.uk/business/2009/oct/12/insider-blasts-fund-managers-hidden-charges

jamesd

EdInvestor, perhaps you might like to be transparent about Alan Miller and his company SCM Private: "Investment Strategy All investments are via passive instruments (ETFs) actively managed by Alan Miller who has one of the longest outperformance track records."

Mr. Miller presumably got his outperformance track record while a director, co-founder it seems, and joint chief investment officer, of New Star, which was charging normal to high fund management charges. So presumably he managed to outperform even with the higher charges, if his claimed outperformance is based on that period. Unless he'd care to claim that he simply got lucky, as is normally claimed by fans of efficient market theory to explain outperformance.

To put it simply: Mr. Miller has a commercial benefit to gain from his claims, just like any vendor of ETFs who might try to promote them on the basis of lower cost regardless of performance.

Hopefully Mr Miller will continue to be a fan of transparency and will publish the performance of the money he now manages so it can be compared with that of other managers of money, just as happens all the time with the after all costs performance of standard funds.

Remember that there is no hiding in the fund management world when you're required to disclose your performance: that performance is after all fees, including all dealing and other costs. You're monitored every single day when it's consumer funds with daily pricing. It's not hidden, it's painfully public if you have even one bad day.

While I haven't investigated his past performance in detail, "Miller, who is joint chief investment officer, has handed the reins of his underperforming UK hedge fund to new recruit Guy Crossland, who joins from Investec, and will run the fund alongside New Star's other joint CIO Stephen Whittaker" according to a Money Marketing story on 7 September 2006.

Best wishes to Mr Miller in his new venture, and I hope that his personal troubles are thoroughly over, for he seems to have had far more than his fair share of strife in recent years.

dunstonh

Total charges eat up 40% of people's pension pots.

So?

Savings accounts have charges but you dont see what they are. Over 40 years you would be losing a similar amount in a savings account. To expect work to be done for free is not sensible.

Charges have been falling for years. Now you find many pension companies (as you seem to be focused on pensions and not unit trusts yet the article is mostly about unit trusts) have equalised their AMC and TER. Now as has already been said, there are some charges that dont appear in the TER but they are typically those that impact on the performance of the fund.

Even in unit trust form, you can always pick the worst examples and make a headline out of it but the majority of funds are much better priced on charges than years ago.

Arthurian

Could you please explain that bit about ordinary savings accounts, dunstonh? I don't understand - I put £100 in a savings account which advertises a 2% interest rate, and after a year I get £102.

EDIT: Oh, I see - you mean I could have had £103, or 3%, if they hadn't already taken off the £1/1% charges they incurred. Right?