Sam Dunn: They put you off investing, fees. They don't mean to but they do

Driven to distraction: Philip Larkin once implied that parents should keep their own counsel. When it comes to 'you get what you pay for', he may well have been right

Driven to distraction: Philip Larkin once implied that parents should keep their own counsel. When it comes to 'you get what you pay for', he may well have been right

I don't believe Philip Larkin was quite right about our mums and dads. "They fuck you up", he once famously wrote, but most parents don't go much further than driving you to distraction. That said, they do have a tendency for dispensing what pass for pearls of wisdom.

They'll claim they've forgotten it now, but my parents often told me that real value always costs more - you get what you pay for.

Sadly, it was only after years spent handing over shedloads of cash to a mix of overpriced retailers and flashy restaurants that I discovered, in many cases, quite the reverse is true.

This isn't to suggest that expensive goods are always a rip-off. Rather, it's an assertion that charges for goods and services can often be unnecessarily high and have nothing to do with value; they simply pad the company's pockets at your expense.

Such censure has often been levelled at fund managers and the administrative charges they impose to try to make a return on your cash.

Typically, it costs 5 per cent of your investment just to buy into a retail fund - and then a further 1.5 per cent each year to pay the company to manage it.

How much you actually pay depends on how the fund is bought. Go through an independent financial adviser (IFA) and you should get a discount - a reduction to 3 per cent, say - while a discount broker can screw this down to 1 per cent or less. Buy the fund direct, though, and you'll pay full whack.

When markets were galloping ahead, none of this was much of an issue for investors, since the annual returns tended to outstrip the fund charges and translated into healthy gains.

But the stock market downturn and subsequent sticky patch have left these fees standing out like boulders on a beach when the tide is out.

With fund values falling or barely moving an inch, many investors began to blink at having to pay charges - particularly to buy into a fund - regardless of the manager's performance.

Against a background of growing mistrust of investment companies, brought on by problems including endowment and pension mis-selling, these high initial fees have begun to look vulnerable.

This may turn out to be fanciful, but there may be a few signs of profound change in the fund management sector.

Nationwide has just launched a low-risk fund (run by Merrill Lynch) without an initial fee. You put your £500 in and this very same sum is invested on your behalf straight away; you pay just a 1.5 per cent annual fee.

The building society is not the first to offer free entry to a fund, but if it beats target returns and tempts new investors into the stock market, it will serve as an example to the rest of the industry.

Abolition of the initial fee, a costly barrier that deters many would-be investors, would be little short of revolutionary. It would turn the long-established relationship between fund companies and IFAs on its head (with the advisers losing much of their commission), prompt many industry job losses, and probably lead to performance-related fees for managers so that their employers can recoup the money - something already practised by one investment house, Bedlam.

Few fund managers have yet to take a serious look at this scenario, although regulation changes last year have already made it easier to do so.

Privately, IFAs talk of a desperate need to encourage clients back into equities, and a number have begun to murmur about managers keeping the initial fee but having it scaled down from 5 per cent.

Others still believe that you have to pay more for performance - that it doesn't matter what you pay in fees because a good manager will always be worth it.

Yet the mediocre performance of plenty of fund managers over the past few years belies this, and no star manager can shine for ever.

We may be a long way off but the end of the initial fee could one day breathe new life into our appetite for stock market investment.

s.dunn@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

News
people
News
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the iWatch for you? Well, it depends if you want for the fitness tech, or the style
News
Astronauts could be kept asleep for days or even weeks
scienceScientists are looking for a way to keep astronauts in a sleeplike state for days or weeks
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
    Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

    UK's Major Tum to blast off on a spice odyssey

    Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
    John Harrison's 'longitude' clock sets new record - 300 years on

    ‘Longitude’ clock sets new record - 300 years on

    Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
    Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

    Let the propaganda wars begin - again

    'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
    Why Japan's incredible long-distance runners will never win the London Marathon

    Japan's incredible long-distance runners

    Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
    Why does Tom Drury remain the greatest writer you've never heard of?

    Tom Drury: The quiet American

    His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
    You should judge a person by how they peel a potato

    You should judge a person by how they peel a potato

    Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
    Beige is back: The drab car colours of the 1970s are proving popular again

    Beige to the future

    Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
    Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

    Bill Granger cooks with fresh cheeses

    More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
    Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

    Shay Given: 'This FA Cup run has been wonderful'

    The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
    Timeless drama of Championship race in league of its own - Michael Calvin

    Michael Calvin's Last Word

    Timeless drama of Championship race in league of its own