Mark Dampier: It's time the FSA made fund charges clearer
Saturday 24 March 2012
I received a letter from a reader concerning fund charges recently, and with much publicity on the subject at the moment it seems an opportune time to air my own views. Fees and charges are of course important. Over time they can make a huge difference to your investment returns, so I make no apologies to devoting this week's column to them, as well as the overall logistics of managing your investments efficiently.
Starting with the basics, OEIC (open-ended investment companies) and unit trust funds are the most popular means for private investors to access the markets. They come with fees of up to 5 per cent, though few, if any, investors pay the full charge. If you do, stop! You must be going direct to the fund management group, which is usually the most expensive way to invest.
Going through an adviser, particularly an "execution-only" broker, usually means the initial fee is discounted substantially, sometimes to zero. In addition, some brokers will also refund some renewal commission providing savings on the annual fund management costs too.
Most private investors buy through a "platform" or fund "supermarket", either on their own or through an adviser, to take advantage of these savings. A platform acts like a backroom administration system, enabling you to directly buy and sell funds quickly and easily online, by telephone or by post. Platforms enable investors to aggregate all sorts of investments from different providers in one, easily accessible place – a great benefit if you are like me and want to keep the financial correspondence you receive to a minimum.
An American general once said, "amateurs talk tactics, professionals talk logistics". It seems to be true of the investment industry too.
Plenty of column inches are dedicated to investment ideas and portfolio construction, but precious little on how to manage it all efficiently.
What is the point of an investment master plan if you can't execute it? Fund platforms offer this efficiency: 24-hour, online access to your SIPP, ISA and share portfolio with minimal paperwork. Rather than being inundated with reams of information from a myriad of providers, you can have one, consolidated document including a tax statement – a vast improvement on 20 years ago! Most importantly, platform services generally save the customer money due to the discounts mentioned above.
The information provided by platform operators also allows the customer to compare the charges and performance of various funds. However, a debate currently rages on whether the annual fees deducted from unit trust or OEIC funds are being properly reported. The figure investors most often see is the annual management charge (AMC). This is the charge the management group takes for running the fund. Yet it excludes various items such as legal costs. So the alternative, more comprehensive figure is the total expense ratio or TER, soon to be known as the "ongoing charge". This includes the various other costs incurred by the fund so is a better measure than the AMC. Dealing costs, however, are still excluded. Some argue they shouldn't be, but they can change drastically over time, so perhaps it would make the figure less useful.
A more important point is how fund administration and registration costs are being taken. Increasingly they are being expressed as a fixed percentage of the fund. It may sound a small point, but percentages of growing funds add up to a lot of money quickly. These charges ought to be relatively static and shouldn't really increase markedly as the fund grows. Some fund groups are also seemingly reducing the AMC whilst maintaining the TER level, something that also doesn't look right to me.
Several groups such as Fidelity have suggested there should be a standard figure for the total cost of fund ownership. It sounds a sensible idea, and speaking from a consumer point of view I ask why the FSA haven't sorted this out already. An opportunity recently seems to have been missed with the introduction of new disclosure documents known as Key Investor Information Documents or KIIDs. Surely it is the FSA's job as the financial services regulator to look at fund costs and how groups are charging.
It seems reasonable to me that a system be put in place where consumers can compare the price of a fund with one annual percentage figure that accurately reflects total cost.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent
- 1 Cyclist who knocked down three-year-old girl says his life has been 'destroyed'
- 2 A politically correct lefty goes to see Top Gear live – you'll probably believe what happened next
- 4 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
The day that Britain resigned as a global power
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
EU referendum: David Cameron to deny EU migrants and under-18s the chance to vote
A nation of inequality: How the UK is failing to feed its most vulnerable people
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...
Day In a Page
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof