Investment fees shakeup?

darkidoe

Linton wrote: »

No, that is the point. Published performance is based on the unit price with reinvested dividends/interest. Fund charges aren't an extra you pay, the price already includes them.

The only extra charges are for advice and the platform.

But the TER or OCR or AMC, what ever it is called should include the fees and charges as well no? At least that's my impression. If not, it is indeed very sneaky.

Thrugelmir wrote: »

Unlikely. Probably the least military expansionist US President for a while.

Ah but he seems like someone who would pull the trigger by mistake without knowing the consequences.

bowlhead99

SallyG wrote: »

....as far as my pension fund goes I can see what the pension provider removes from my fund each month but the amount the fund managers take is already deducted from the unit price - so their take is hidden and looks like the ups and downs of the market - why can't the charges made by fund managers be shown alongside the unit price- it must be on their screens - why not just tell us?

They do tell you. The fund manager publishes an ongoing charges figure or a total expense ratio figure which encompasses their 'take'. With most DIY pension providers that take their own fees from your fund each month, you would find it on a factsheet screen when you decide to buy the fund.

Some pension providers (e.g. group personal pensions through your employer) might not list the fee at the time you do a switch because the funds they offer are all on a rate negotiated with your employer, but that rate will be published somewhere.

You say the manager's take is hidden in the ups and downs. Yes it's true that the published cost of running the fund is included in the ups and downs that you see: in other words, you would have got bigger ups and smaller downs if it had been possible to make the exact same underlying investment profits or losses without paying the manager or any running costs. But of course you wouldn't have got those exact same underlying investment profits if you hadn't used that manager and paid those running costs, so it's the net figure of all profits less all costs which should go into the performance tables.

You can then take those net returns and see what net returns would have been available via from other funds that you might have picked instead. The costs are inherently entangled with the return and seeing an extra charge on your statement would be largely irrelevant - the option of changing the fee to someone else's fee is not possible without also changing the return to someone else's return.

talexuser wrote: »

Since I don't like approaching 50k in any one fund I might want 2 funds in the same area (hopefully without too much overlap in their contents).

If you are deliberately buying an active fund because you don't want the same level of diversification from a tracker, this seems a bit of a strange strategy.

It sounds like the only reason you are using 2 funds in the same area is because you are concerned about a problem with a fund going bust due to fraud etc and not having protection over 50k. So I'd infer that you would probably be happy to have all the money for that area in one active fund if the limit was 500k instead of 50k. But, rules being rules, you are splitting it, right?

So if you split into two funds because you're forced to, but both of those funds invest in similar holdings because both managers consider those companies to be the 'best ideas' in that particular area that you want them to cover, how can you see 'overlap' as a problem?

"Hoping" that they both have very different ideas with no overlap means you hope you can find one manager who thinks the first manager is wrong and wants to go a different way. That's not a great endorsement of your first choice, if the second thinks they should construct a vastly different portfolio in the same area of the market to get a result that would meet your needs. If you keep adding more and more active managers in the same area, each time hoping for minimal overlap, you will probably end up somewhere close to what a tracker would have given you (a bit of everything with most money in the biggest companies) which was what you were trying to avoid by paying for active management.

The managers history then becomes important plus I would wish transparency on the fees if the TER does not tell the entire story. If 2 active choices are a very close call, then fees come into the equation

If the two active choices have demonstrated that their returns net of fees are very close indeed over a variety of market conditions and very similar total return over a decent time period with a level of volatility you are happy with, and a strategy with which you're comfortable... then it shows that the one with the higher fee was consistently producing a return that allowed the higher fee to be paid and still get the same net return as the other which had a lower fee. So in what sense do fees need to come into that equation?

and if the TER is not telling the whole picture that might give the wrong impression as to likelihood of future outperformance.

This sounds like your mindset is that by getting a transparent view of fees and finding out the level of expenses, that expense level will allow you to form the right impression on likelihood of future outperformance - presumably because you believe a lower level of expenses is indicative of future outperformance?

And yet you always prefer to go for active investments with higher fees than trackers which you expect to outperform trackers which is why you have been doing it for 25 years and only reluctantly use trackers here and there for easy diversification, but generally would prefer to pay more fee for a manager's view of the best strategy. If you believed that lower expenses indicated better future performance, probably you would be in trackers rather than paying extra to shape your returns?

As you are happy to pay extra to shape your returns, it's clear that you don't entirely buy the 'lower fees is greater outperformance' argument and as such it is probably not the end of the world if Active Fund A delivered an annualised 3% net of a 0.6% charge while Active Fund B delivered its annualised 3% net of a 0.65% charge.

Clearly in that example, Active Fund A has an advantage as it has a lower bar to pass before it gets into profit each year, but its history shows it has not actually been able to get far enough into profit to actually outpace Active Fund B so is not really a better fund. On the face of it, when both funds have a 'zero gross return' year, A will lose less money than B, and in fact if both funds have the same gross returns (positive or negative) A should always be on top... but if A has not been coming out on top then the A guys are not any better at managing the money and, without a change of manager or strategy at A, there's no reason to anticipate that A will now start to do better going forwards.

talexuser

bowlhead99 wrote: »

If you are deliberately buying an active fund because you don't want the same level of diversification from a tracker, this seems a bit of a strange strategy.

No, I like to gamble I will find actives that outperform a tracker after fees. No active will have the diversification of a tracker by definition because otherwise it would be the tracker. But if there are say eg 3 active income funds that consistently beat an equivalent tracker then you have a decision which to buy based on contents and fees since they may have a similar spread of eg top 10 holdings.

talexuser

bowlhead99 wrote: »

This sounds like your mindset is that by getting a transparent view of fees and finding out the level of expenses, that expense level will allow you to form the right impression on likelihood of future outperformance - presumably because you believe a lower level of expenses is indicative of future outperformance?.

Well you have to admit that a lower level of expenses gives a better chance of future outperformance than higher expenses, and is indicative of the level of churning, which may have a bearing on the success of the managers guesses if he does not need to have more "panic" selling of his original choices.