TCF funds go back to basics on charges

The Total Clarity funds have either a 20, 40, 60 or 80 per cent allocation in equities allowing advisers and investors to build an ideal match for their risk level.

They will be diversified across equities, bonds and property with the holdings spread between low-cost managers such as Northern Trust, Vanguard and iShares.

The funds have no initial, exit, switch or performance fees and the total expense ratio will reduce in stages as the funds grow, from 0.8 per cent in the first year down to 0.6 per cent.

David Norman and Gary Mairs, founders of the London-based firm, have both put their own money into the products.

Mr Norman estimated that low-cost funds could save an investor 3.5 per cent a year compared with a typical fund-of-funds product.

He said: "The fund management industry has forgotten whose money it is looking after. Charges have risen relentlessly over the decades when they should have been falling as funds grew in size. We estimate that retail investors are paying at least £3bn a year more in annual fees than they should be. That is £12m every working day and it shows no sign of slowing.

"On top of these management fees, the costs of trading the stocks and shares within funds can add 1.4 per cent a year or more of performance drag. It is time for a revolution that tips the balance back in favour of poor investors and away from greedy managers."

Mr Mairs said: "The original idea behind mutual funds such as unit trusts was to provide straightforward and simple products that allowed cost-effective and safer access to markets from around the world. The fund management industry has forgotten this and instead often launches complex products that just ramp up costs and charges.

"We have used smart technology and intelligent administration to ensure security for customers but also maximum cost-effectiveness.

"Reducing charges as the funds grow in size is the fair thing to do. We hope that others copy us."

Ian Hart, director of London-based Timothy James, said: "Funds such as the TCF range are going to become more important for IFAs to consider after the retail distribution review. The main argument we are having as a business is the whole active versus passive debate."

Final difference in value based on initial investment of:	10 years	20 years	30 years
£10,000	£5,152	£15,973	£37,485
£50,000	£25,759	£79,865	£187,423
Source: TCF Investment estimate of how much investors could save. Assumes 7 per cent growth with total performance/cost drag of 0.9 per cent a year and 4.4 per cent a year.