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By Michael Trudeau | Published Jul 23, 2012

Kay review rightly focuses on poor value ‘closet trackers’

Gina Miller, founder of the True and Fair campaign for increased transparency from fund managers, has welcomed the publication today (23 July) of a government-commissioned review of investment sector cost disclosure and in particular its focus on poor value ‘closet tracker’ funds.

The Kay Review, commissioned by business secretary Vince Cable last year, calls for the regulation of fee disclosure if a recently-launched consultation by the Investment Management Association fails to improve standards.

Ms Miller said she agrees with the reports call for increased transparency and added that the report’s claims that many investment managers become ‘closet trackers’ opting to hug index performance to avoid under-performance was commensurate with the experience of many.

“The Report’s claim that many investment managers become ‘closet trackers’ opting to hug index performance to avoid sustained periods of under-performance absolutely mirrors our experiences of the investment management industry and consumers will rightly question what the management fees they pay actually cover.

“Nothing less than full disclosure and transparency on costs is acceptable. We are extremely pleased that a number of esteemed individuals and organisations are now all talking with one voice to effect change the industry to ensure consumers are the first consideration in all investment and savings organisations.”

Ms Miller’s campaign calls for trading costs to be included when reporting investment results rather than just the total expense ratio, which is supported by the IMA.

Ms Miller added: “We have been calling, via the True and Fair Campaign, for total transparency on all investment management costs and fees and for consumers to be given full disclosure on all costs, via one simple number that enables them to accurately compare performance between investment funds and pensions.”

The IMA welcomed the report and broadly agreed with its recommendations.

However Liz Murrall, director of corporate governance and reporting at the IMA, did point out that although the Kay Review distinguishes between investors and traders, it does not take that difference into account in its accusations of “short-termism” in the investment industry.

Ms Murrall argued: “IMA does not consider asset managers contribute to short-termism.”

“In the interest of improving trust, one of the principles in the report is that all participants in the investment chain should observe fiduciary standards.

“This is to be welcome as asset managers already have the best defined, legal obligations of care towards their clients and it is right that these are extended to others.”

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