Regulation  

Fund costs to be fully disclosed

Fund costs to be fully disclosed

A new method of calculating and presenting fund fees has been proposed by the Investment Association (IA, previously the Investment Management Association, IMA).

The paper has been published in the hope fund groups should use a new consistent calculation and presentation methodology for turnover rate within vehicles.

The paper, ‘Meaningful Disclosure of Costs and Charges’, outlines the trade body’s contribution to the charges debate. It has spent the past three years championing work on the clearest way to compare the costs of fund management. It provides proposals for discussions with the industry, government, regulators and investors and their representatives.

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Foremost, the IA states ongoing charges should be calculated and described on a consistent basis and any performance fees and one-off charges should be expressed separately. Charges and transaction fees should also be separately identifiable.

On a historical basis, the trade body suggests both charges and explicit transaction costs should be expressed in monetary terms. On a forward looking basis, where monetary amounts are not known, expression should be as a percentage of average net asset values.

But should fund managers be more specific about costs? Daniel Godfrey, chief executive at the trade body said some costs of investment management are “dis-informative and over-emotive hyperbole”.

Jonothan McColgan, director and chartered financial planner at Bath-based advisers Combined Financial Strategies, describes the paper as having consumer interest at the heart of what it wants to achieve. He added the trade body also seems to be willing to have an open discussion with the industry on how to resolve the problem with AMC figures not accurately reflecting the true total cost of investing.

“The problem however, is that much of the additional fees are accrued by the process of trading and as such constantly vary. So last year’s trading fees may not accurately reflect trading fees going forward.”

Mr McColgan thinks the more information the better. “Not only should fund managers declare these trading costs but they should be averaged over three years and all performance figures should be shown net of total costs so clients can see what level of real return they are getting for their money.”

But being clear about charges has not been positive for Hargreaves Lansdown in its first year of using clean pricing.

The adviser group reported a slight dip in profit before tax in its interim results for the six months to 31 December. One of the reasons cited for the drop in profits – which fell from

£104.1m to £101.9m – was lower interest rates and lower post-RDR charges which have contributed to a reduced net revenue margin on its Vantage platform.

Its clean pricing structure was introduced in March 2014, and Vantage has seen its revenue margin on funds held fall from 60bps to 47bps. This was in line with the firm’s expectations.