Kay Review: Fee disclosure should be regulated

Fund fee disclosure should be enshrined in financial regulation if the IMA’s consultation does not improve current standards enough, according to a landmark report into equity investing.

The Kay Review, published today and written by economist John Kay, said asset management cost disclosure was “worse than useless” if it did not take into account all layers of fees charged to the investor - including trading costs.

Mr Kay added: “The existing structure of obligations on disclosure of charges makes [long term] investment strategies appear more costly relative to [short term] trading strategies, and this impression is misleading.

“We hope that the current IMA consultation will arrive at an appropriate disclosure regime. If it does not, the issue of full and meaningful disclosure should be advanced through regulation.”

The IMA launched a consultation last month, gathering member views on new guidance aimed at improving investor access to fund manager fees information and explaining fully what each cost incorporates.

However, the fund management trade body again resisted calls from some quarters to include an explicit calculation of how much trading costs detract from a fund’s performance.

One of the parties calling for fund managers to disclose trading costs is SCM Private. Co-founders Alan and Gina Miller have taken their True and Fair campaign - which proposes a one-page document outlining all fees at all stages of the investment process - to European politicians in an attempt to get their own proposals incorporated in the Markets in Financial Instruments Directive.

The Kay Review’s recommendation for cost disclosure states: “Asset managers should make full disclosure of all costs, including actual or estimated transactions costs, and performance fees charged to the fund.”

The review was commissioned by business secretary Vince Cable and is likely to play a key role in informing government policy on financial services and markets regulation.