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; request a free guide on NISAs from Hargreaves Lansdown

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
Friends is celebrating its 20th anniversary this year
tvSeries celebrates 20th anniversary
News
news
Life and Style
Jack Cooksey goes for the grand unveiling - moments before dropping his new iPhone 6 on the floor
iphone launch
PROMOTED VIDEO
Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Sport
Yaya Touré (left) and Bayern Munich’s Spanish defender Juan Bernat
football
Arts and Entertainment
A spell in the sun: Emma Stone and Colin Firth star in ‘Magic in the Moonlight’
filmReview: Magic In The Moonlight
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Finacial products from our partners
Property search
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

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Audit Manager Central Functions

    To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...

    Credit Risk Audit Manager

    Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week