Fund manager charges report

SallyG

http://www.fs-cp.org.uk/publications/pdf/investment_discussion_paper_investment_cost_and_charges.pdf

1. Key Findings
1.1 After a review of a wide range of studies and methods of calculation, the Pitt-Watson team concluded that the full costs borne by savers are simply not known, and costs are deducted from the fund directly by the provider. The main reasons are simply that many costs are not properly measured or declared. Even fund managers frequently do not appear to know: in its survey of fees, consultancy Lane Clark & Peacock, found that around two-thirds of investment managers could not provide information on transaction costs. Moreover, explicit costs charged to the customer – included within the annual management charge (AMC), the total expense ratio (TER) and the ongoing charge figure (OCF) – are a poor guide to the full costs. This was the conclusion of an early (2000) study commissioned by the FS and holds true in more recent studies surveyed by the Pitt-Watson team. In one study, “total” charges, excluding transaction charges, were calculated (with difficulty) from published, but not necessarily comprehensive, mutual fund price lists. They were typically more than twice the annual management charge in a number of countries, including the UK."

kangoora

So, in other words they just guess.

"Tell you what Reginald, these damn proles will never work out the actual charges so let's just agree that 1.2% will cover our charges (with a little bit on top, just in case) and we'll be laughing all the way to the bank when the bonuses are paid out"

Funny how they can be very exact when charging for services but hopeless when asked to explain the basis of the charges.

I'd expect a market stall to have a better profit/loss understanding.

SallyG

"Conclusions and Next Steps
The evidence reveals a market characterised by a weak demand side that is rapidly growing numerically, and a powerful industry in which misaligned incentives are systemic and which enjoys, largely unchallenged, the potential to exploit consumer behaviour, product structure complexity and the lack of cost transparency. As such, the Panel believes that this is not a market where competition works in the consumers’ best interests.
The possible reforms that emerge from our review are primarily of a regulatory and legal nature and would fall within the remit of the FCA or the government. There would be significant implications for policy makers (for example, the DWP in relation to the charge cap and IGCs) and for the industry in terms of product structures, fund pricing, market practices and remuneration structures, among other factors."

SallyG

http://www.moneymarketing.co.uk/news-and-analysis/investments/ima-consumers-dont-want-to-look-under-the-bonnet-of-investments/2016493.article

"Speaking during a panel debate at a conference hosted by the Open University Business School in London earlier this week, IMA director of training and education Victoria Nye suggested there can be “too much” transparency in the industry.

She said: “Investment management is a professional job and you cannot expect to make people professionals overnight by explaining what is going on underneath the bonnet.

“You wouldn’t expect to know how your car runs, so why would you expect to know the detail underneath an investment fund?”

Nye added: “There is an element of trusting the product labelling. The rise of risk targeted funds and solutions-based funds is where people are inherently trusting the labelling, including the advisers who are recommending those types of products." "

sandsy

"There is an element of trusting the product labelling."

And therein lies the problem identified by the Consumer Panel. The label only includes the explicit costs, not the indirect costs such as transaction costs which are charged to consumers without clear and upfront disclosure.

This only shows that the IMA are more interested in protecting their members than consumers.

SallyG

They've got away with it for so long ....I can't understand why if IFAs are on the side of their clients - fiduciary duty etc. - down the years most of them appear to have gone along with it.