Investment fund fees soar over the past decadeInvestors hit by rising annual charges

10 October 2011

Fees affect performance

The cost of your investment fund should be a key consideration

Pension and Isa savers have been hit with rising investment charges over the past decade, according to new research from Lipper.

Over 80% of funds that Lipper analysed have increased their fees in the last 10 years, with the average actively managed investment fund increasing its annual management charge by 30 basis points.

Active funds up their fees

Lipper looked at 196 investment funds, popular with stocks and shares Isa and pension savers, that had changed their annual management charges between 2001 and 2011. It found that 80% had increased charges, and that of the actively managed funds it analysed (156), 90% had increased their annual fees.

The average increase in fees for those that upped their charges was 30 basis points, or 0.3%.

This may not seem like much, but over a long investment period and increase in annual costs of this size seriously eat into your returns:

  • If you invested £10,000 over 20 years, and it grew by 5% a year, you'd end up with £26,532.
  • With an annual management charge of 1.2%, you'd have £21,080, paying out £5,450 in charges
  • A 0.3% increase would see you left with just £19,890, paying a huge £6,635 in charges.

Economies of scale not working

Lipper's report suggests that UK funds are not acting in the best interests of their investors by refusing to reduce the annual costs of investments as they get bigger in size. This is in sharp contrast to the US, which cuts the cost of investment funds as they increase their assets.

Commenting on the findings, Which? deputy editor Gareth Shaw said: 'This is yet another poor example of an industry that doesn't seem to have much regard for their customers.

'Fund managers continue to rake in billions in fees every year, yet many would argue that they haven’t been able to justify ramping up fees with good performance. In fact, it's even been shown that the highest chargers underperform cheaper funds.

'It's time managers became competitive on fees and introduced fairer charging structures to give their hard-pushed customers a better chance to increase their wealth.'

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