How can they get away with it?

Voyager2002

The information provided to equity investors is often contradictory and inadequate, but this seems downright misleading:

I was looking at a table of Mutual Funds, and one of them stood out because it was so cheap: a quoted TEF of 0.65 per cent! However, the management fee was a good deal higher than that, and I always thought that Total Expense Ratio included management charges (the clue is in the name!). I emailed the fund manager (respectable, this is run by Allianz) to query the situation, and their response reads:
"I can confirm that the current TER is 2.11% as per 30/09/2013 and the current management fee is 1.75% p.a. The TER for the first FY as per 30/09/2012 was an abridged TER for the first FY."

So why is this kind of deception allowed?

masonic

Just out of interest, what was the AMC for this fund when it was quoting a TER of 0.65% - was it 1.75%, or less than that?

Linton

Are you sure it was exactly the same fund. Funds tend to have a number of variants with different charges. In particular fund managers are now releasing lower fee funds to comply with the RDR requirements to unbundle advice and platform charges. Perhaps if you tell us what the fund was we can check. TER/AMCs do vary a bit over time but nothing like the amount you are seeing.

Also there is no guarantee that a list of funds produced by a third party is correct.

jimjames

Which fund is it? And which platform?

Voyager2002

Yes: they were exactly the same fund (I quoted the ISIN in my letter) and the source of my data was from the fund itself. My enquiry read (in part):
"I am interested in investing in this fund (ISINLU0293315023 / A0M PE7), but am puzzled by a detail... How is it possible that the Total Expenses Ratio is lower than the Management Fee? According to the Fund Factsheet dated 28/06/2013, the former was 0.65 per cent while the latter was "currently" 1.75 per cent."

And this is a reputable provider!

masonic

Voyager2002 wrote: »

I am interested in investing in this fund (ISINLU0293315023 / A0M PE7)

Morningstar do list the TER as 0.65% here (as at 30/09/2012), but in the KID, the OCF is 2.11%.

It looks as though the older figure was probably released with an explanatory note in the fund manager documentation, but was abstracted by certain platforms and research sites without that important caveat. That's why it's always important to check the figures in the documentation provided by the fund management group.

Edit: Looks like I was right, there is an out of date fact sheet here showing the TER as 0.65%, with the footnote "TER of abridged business year".

My guess is they changed the charging structure during 2013.