UK investors hit by £1.8bn a year in unnecessary costs

UK investors hit by £1.8bn a year in unnecessary costs

Excessive charges on more than a quarter of fund sales means UK investors could be paying £1.8bn in unnecessary costs every year, according to a new study.

The report, published in the Journal of Financial Economics, estimated that 26 per cent of the £911bn worth of funds sold in the UK during 2015 were either closet-trackers or managed passively.

This comes after the Financial Conduct Authority announced plans to crack down on those fund houses that fail to make it clear when funds replicate index benchmarks.

Investment analysts said the industry is “riddled” with unfair fees for index-linked products.

Digital wealth management firm MoneyFarm suggested passive funds, disguised as more expensive actively managed portfolios, can eat into investors’ returns, claiming that these lost fees should achieve returns amounting to £5bn over 30 years.

Roberto Rossignoli, portfolio manager at MoneyFarm, said passively managed funds cost investors around 0.5 per cent in fees, whereas an actively managed portfolio costs investors around 1.25 per cent.

katherine.denham@ft.com