It should be noted that between 2014 and 2015 funds underperformed the benchmark, but only by 0.37 per cent – far less than the expected shortfall of 1.56 per cent.
The report said: “Post-RDR it should be possible to measure much more clearly fund manager delivery which will help to inform the value for money debate and the results would be even better using the new unbundled pricing of the ‘new’ primary share classes.”
By its own admission, the IA notes that the lack of empirical data on implicit costs – relating to the costs inherent in accessing capital markets – meant it could not definitively isolate manager skills from transaction costs.
“For example, a low net return and realised outcome may indicate poor stock and securities selection and significant implicit transaction costs, or a combination of both these factors,” according to the body.
It added that one indicator of high transaction costs would be very high portfolio turnover rates.
However, the study found the average portfolio turnover rate was 40 per cent, which also “brings the hidden-fees hysteria, and claims of fund manager overtrading, into doubt.”
The IA reaffirmed plans to publish a ‘Disclosure Code’, which will standardise fee disclosure including implicit cost estimates across all investment products.
The topic of fee transparency is one that touches a nerve with many industry commentators. A 2014 White Paper by Professor David Blake, director of the Pension Institute at Cass Business School, suggested that concealed costs – such as bid-ask spreads and transaction costs in underlying funds – can make up to 85 per cent of a fund’s total transaction costs.
Andy Agathangelou chairman of the Transparency Task Force, labelled the report as “confused”, adding: “The topic of hidden fees plays an important part of the FCA’s study into the asset management market.
“The Department for Work and Pensions is working with the FCA to improve the disclosure of transaction costs in workplace pension schemes. Why would these regulatory initiatives be taking place if there is no issue with hidden fees? It is like the IA is trying to wish away the problem by saying it does not exist.
“I feel sorry for financial advisers because they have a duty to ensure that their clients are well informed about every facet of their investments. They might find themselves being criticised or litigated in the future if they do not make their clients aware of all charges or to the fact that they are hidden costs.”