Fidelity calls for investment fund fee transparencyA clearer way to show ‘hidden costs’ of investing
31 January 2012
Fidelity Worldwide Investment has called for the investment funds industry to make fees more transparent by adopting an industry standard and putting a stop to the hidden charges that are hurting investor returns.
The move follows a Which? investigation late last year that highlighted the true cost of investments, which is often far higher than fund managers make clear.
Fidelity said that 'hyperbolic and inconsistent comparisons do not help investors', calling for full disclosure of fund and distribution costs to enable a 'Total Cost of Ownership' to help investors compare different funds and providers.
Trading costs in a investment funds
In September 2011 Fidelity's FundsNetwork, an online funds supermarket, opted to start displaying fund manager, adviser and platform charges separately, helping investors to see where their money was going.
Fidelity now wants the industry to come together and agree upon a standardised system to illustrate the breakdown of costs across their range of funds.
This would include the portfolio turnover funds, which accounts for the cost of stock market trading and Government stamp duty and can add substantial costs to investors, beyond any initial, upfront fees.
Hidden costs of investing
Which? found that when added to the average annual charge, known as the total expense ratio, or TER, of around 1.65%, PTR took the real cost of the average fund investing in UK companies to 2% a year.
Under Fidelity's proposed new industry standard (see below), the PTR would be stated, so investors could gauge the overall cost more easily and see the clear differences between the cost of funds.
|A new way to publish fund charges|
|Charge||Typical amount for an actively-managed fund, expressed in % and £ for £10,000 investment|
|Investment management charge||0.75% (£75 a year or £6.25 a month) retained by fund manager|
|Other service and administration charges (eg legal and custody)||0.14% (£14 a year or £1.17 a month) passed on to service providers|
|Cost of advice or distribution||0.5% (£50 a year or £4.17 a month)|
|Platform administration charge||0.25% (£25 a year or £2.08 a month)|
|Stock Market dealing costs and Government stamp duty||0.36% (£36 a year or £3 a month)|
|TOTAL ANNUAL COST OF OWNING A FUND (based on investment of £10,000)||2.00% (£200 per year or £16.67 a month)|
Charges have a huge impact on the performance of your investment and Which? is campaigning to make fund fees clearer and fairer.
Positive move for investors
Which? investments researcher Matt Woodington said: 'We believe this is a positive step by Fidelity and should encourage the funds management industry to work together to start presenting fees to investors in the simplest, clearest and most conclusive way possible.
'This will give consumers greater confidence and trust in fund managers and enable them to make better informed investment decisions.'