Fleeced tracker investors must be told about better deals

John Lappin

Passive price wars don’t hurt anyone. Accessing markets as cheaply as possible makes a huge amount of sense for investors.

The latest Fidelity price cuts are certainly welcomed. We have come a very long way from the 1 per cent tracker fund once held by Virgin as the solution to mass-market investing.

This may be a function of an increasingly crowded market where many fund management giants now offer exchange-traded funds and tracker funds.

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It is also clear that any retail fund supermarket worth its salt must offer access to a decent passive range.

But there is a huge problem thrown up by the research. Fidelity may offer an excellent 0.07 per cent charge on its Index UK fund and 0.08 per cent on its Index US fund; indeed, the firm looks to have priced things well under its rivals’ prices. But it is the £7bn of money invested in trackers charging one per cent or more that really causes pause for thought.

So, while Fidelity can make a very convincing argument when its products are matched against comparable BlackRock and Vanguard funds, it is surely that £7bn that is all rather puzzling.

It would be great to get more information about this money – not just where it resides, but how accessible it is as well.

One must assume, first of all, that these investors have not seen a decent investment adviser recently. Nor are they likely to be highly engaged and therefore price-sensitive direct investors. After all, we have just seen Hargreaves Lansdown extolling the fact that you can access Neil Woodford at the best price with them. Price is increasingly key in the scrap for assets.

Yet, it seems some of this message on pricing is washing over what must be tens of thousands of investors. One wonders whether a marketing and advertising campaign or even a social media drive could reach these investors and suggest politely that they might like to move to a lower-charging home. There are already very many advocacy groups that will urge you to switch your current account, and to manage your savings so you avoid the curse of the teaser rate.

But perhaps we need something similar for funds. Could investment advisers attract these investors to their execution-only services at least?

For all the benefits of the RDR, it is clear financial services has lost some of its reach and ability to shake up the market.

To put it another way, in a world where you can access Neil Woodford for 0.6 per cent (plus platform fee, of course), is it really tenable that other investors are paying through the nose for passive?