Increased pressure is being placed on fund managers as commentators and transparency campaigners welcomed ideas outlined in a damning Financial Services Consumer Panel report demanding a “radical” new single investment charge to prevent customers being ripped off.
Fund managers currently pass various types of charges on to investors by paying for them directly out of the fund’s investment pool, including trading costs, commissions for brokers, legal and administrative costs, taxes and their annual management charges.
The 450-page FSCP paper argues for a new single investment charge, which would cover all these expenses, although this would require “structural changes in the industry and would be likely to be challenged by investment firms”.
The findings were supported by high profile campaigners, as well as consultants such as Broadstone and research house Trustnet’s trading platform. FTAdviser spoke to a number of fund groups but none were able to provide comment at the time of writing.
The True and Fair Campaign said in a statement that the findings provide independent academic evidence of widespread anti-competitive behaviour and systematic practices that amount to “legalised fraud” in the British pension and investment industry.
It said that the findings warrant a Competition Markets Authority enquiry combined with immediate action from the UK government and regulator in order to prevent any further “pickpocketing” of hard working people.
Gina Miller, founder of SCM Direct and the campaign, said the exploitation of investors and pension savers was a “national scandal”.
“For three years, we have been calling for the investment management industry to give total transparency on all costs and fees, and to disclose all costs in a single number, in pounds and pence.
The industry has treated our calls with contempt and aggression, despite the fact that our consumer research has consistently shown that consumers want clarity and total transparency on costs and fees.
“There have also been numerous reports, from the Financial Conduct Authority, the Office of Fair Trading and government departments such as the Kay Review, which have all highlighted the structural issue around hidden costs and fees in the UK and called for radical change.
“This has been met by empty speeches and worthless industry voluntary codes. The principle of ‘Treating Customers Fairly’ has turned out to be just hollow words.”
Speaking to FTAdviser, Matthew Phillips, managing director at Broadstone, said that the idea of a new single investment charge was a good thing because it would enable people to compare like with like.
He said: “I’m in absolute agreement with the FSCP. If it enables people to compare like with like then that can only be a good thing. Anything which supports transparency has to be a good thing.
“All change comes with downsides but the upside should be greater transparency - that greater transparency leads to greater competition.”
Investment platform Trustnet Direct said the FSCS report highlights the shortcomings of the current ‘one-size-fits-all’ approach.
John Blowers, head of Trustnet Direct, said: “A fund manager shouldn’t face a penalty for trying to move a client into a better position if the allocation for transaction costs has already been used up, but equally some more cautious investors would appreciate the ability to know how their money is going to be spent, well in advance.