What We Don't Know...

RickyB2000

These fees remind me more of when you take your car in for its MOT, rather than a hairdresser. You get the call for all the expensive things that need fixing for it to pass. If you know about cars, much like these fees, you can quickly assess if you are being ripped off. If you don't, then it comes down to how much you trust the garage you went to. Most people would probably not have a clue and just pay up, and either push it out of their minds or become suspicious and even less trusting of garages in the future.

Bootsox

Maybe old news to some but useful to keep this kind of racketeering (excessive/opaque fees) to the forefront of people's minds.

bigadaj

Bootsox wrote: »

Maybe old news to some but useful to keep this kind of racketeering (excessive/opaque fees) to the forefront of people's minds.

Yes and no.

The majority of the population will just read it and moan about life being unfair, which would have been understandable a few decades ago as there were few alternatives.

Now there are so many low cost options that everyone should be voting with their feet, and even employees should be lobbying their employers if excessive fees on comoany pensions are involved, though many comoany schemes are lower cost than private pensions.

Fees are both certain and impactful on pensions and other investments, so need to be minimised as far as reasonably possible.

bowlhead99

Bootsox wrote: »

Maybe old news to some but useful to keep this kind of racketeering (excessive/opaque fees) to the forefront of people's minds.

Excessive fees will reduce the performance of the fund against alternatives - whether the excessive fees are opaque or explicit. So if you are buying a fund with a track record you may be able to weed out the ones with high fees, due to their materially worse performance against the rest of the sector over a range of economic conditions.

If you can't, because the performance of the funds net of fees is not actually materially worse than its competition, then arguably it is somewhat less of an issue because the opaque racketeering is not costing you anything.

The article claims that the hidden charges of broker commissions, research fees (which are sometimes bundled into the broker commissions) and ad hoc investment banker fees for obtaining meetings with CEOs, paid by the funds for some reason but excluded from OCF, can add up to 3% a year on a portfolio ("...more than twice the typical 1.5 per cent (or so) annual management charge that’s quoted to us by our pension fund managers"). If there really is a fee drag of that magnitude on the performance, it would be quite evident in the final net return over time.

Their implication is that the cheap tracker ETF of which they are so fond - which doesn't trade its holdings or need much in the way of research and can therefore operate while being relatively less exposed to "hidden fees" - has a 3% advantage from not having the hidden fees and presumably also a 1% advantage from only having unhidden fees of <0.5% instead of ~1.5% for the 'typical' managed pension fund. So, the fee advantage is 4% for the tracker, right?

On that basis, in a period where trackers deliver annualised net total return of 7% for a decade, the one with the hidden fees applied to the same gross performance would only deliver 3% annualised. The tracker would double your money per decade (97% profit) and the terrible opaque fund with scandalous charges would just increase your assets by about a third (34% profit).

On that basis, there isn't any real reason to keep "this kind of racketeering" to the forefront of your mind - simply eliminate from consideration the type of funds which only deliver one third growth when their rivals double yet still lose as much or more in the down years.