Happy anniversary! It’s almost two years since the FCA all but ordered asset managers to stop using the annual management charge (AMC) on their marketing literature, instead insisting they use the more comprehensive ongoing charges figure (OCF).
Investment Adviser pledged at that point to ban the use of AMCs when talking about fund costs, in favour of OCFs. Come 2016, a time when scrutiny of fund charges remains prominent, you’d think our ruling would be simple enough to enforce. Guess again.
Let’s digress. Many advisers may be thoroughly sick of the constant focus on fund fees, and they have a point. Of course, every basis point has an impact, and the increasing disparity between active and passive fees is clearly putting some pressure on the top end.
But for those who do choose active, I do think we sometimes lose sight of the fact that price is just one factor in the selection decision.
If you were to present an adviser with two active European equity funds, only one of which was run by a manager they rated, then I’d bet a 10 basis point price difference isn’t going to significantly influence their choice.
“With change about to be imposed, the public relations opportunity lies in getting out ahead of the inevitable.”The problem, as we all know, comes down to the way in which those costs are disclosed. Selection decisions may not turn on, say, the increased fees associated with higher portfolio turnover rates, but it’s impossible to deny the buyer has a right to know.
It’s true that improvements on many ‘hidden’ costs – those relating to trading and research, for example – are gradually materialising, albeit only now the spectre of European regulations such as Mifid II are looming large. With change about to be imposed, the public relations opportunity lies in getting out ahead of the inevitable.
But though they may be good at getting this information out to journalists, asset managers are in danger of losing sight of the wood for the trees. Never mind the hidden costs – stating the upfront ones would be a start.
As you may imagine, Investment Adviser receives a lot of press releases about fund launches. Plenty of them still use AMCs to describe their charges.
You may say the absence of an OCF is nitpicking, whatever the regulator’s advice. But increasingly it seems these statements don’t include any information whatsoever on a fund’s charging structure. Ask for further information, and it often takes firms days to find out exactly what those headline fees are.
Why does this matter? Advisers will have little problem finding out more detail themselves, after all. But it’s the principle that’s important. We know active fees are higher than passives, and there’s arguments to be made for that. Not revealing charges, even to journalists, just smacks of an industry that still has something to hide.
Dan Jones is editor of Investment Adviser
