FeesMar 8 2017

SCM accuses fund industry of price fixing

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SCM accuses fund industry of price fixing

SCM Direct has accused the active fund industry of colluding over prices, as the firm found evidence that a large majority of funds had exactly the same annual management charge.

Research from investment company SCM, which was co-founded by Brexit challenger Gina Miller, found 70 per cent of actively managed equity funds charge an identical annual management charge of 0.75 per cent.

Ms Miller said this was proof of anti-competitive behaviour within the active fund industry, and urged the regulator to probe firms to find out if price collusion, whether formally or informally, is taking place.

The research comes months after the Financial Conduct Authority published its scathing report on asset managers, where it criticised the lack of price competition in the active fund sector.

The FCA report pointed to a “considerable clustering” of prices for active equity funds at both 1 per cent, and 0.75 per cent for clean share classes.

SCM founding partner Ms Miller said this lack of genuine price competition means UK investors suffer.

The findings, which looked at 2016 charges across a sample of 683 funds, showed this 0.75 per cent charge is also identical to the fee bundled with other charges before the Retail Distribution Review in 2012. 

While the RDR was thought to impose continual downward pressure on charges for active funds, SCM found fees have not changed for at least five years.

Ms Miller therefore said the perception that AMC fees would fall is “completely untrue”.

Of the £554bn invested in UK retail equity funds, 88 per cent is actively managed.

SCM calculated that if the underlying annual fee reduced by just 0.1 per cent to 0.65 per cent then UK savers and investors would be £488m better off every year. 

When the Office of Fair Trading and the Competition Commission merged to form the new Competition and Markets Authority (CMA) back in 2014, Ms Miller said many investors rightly expected robust enforcement of competition rules.

But she said this did not appear to be the case in the fund management industry, adding: “It is surely time for both the FCA and the CMA to investigate price fixing in UK retail actively managed investment fund?”

However Blair Cann, certified financial planner at Hertfordshire-based M Thurlow & Co, said: “This sounds more like a marketing exercise than an altruistic gathering of data to enlighten the public.”

Commenting on the findings, he said charges are only one part of the equation, pointing out that it is just as important to look at the performance of the fund, the fund manager’s track record, and the reputation of the provider. 

“The 0.75 per cent AMC for an actively managed fund does not seem to me to be excessive and is probably about par for the course,” Mr Cann said, adding: “I cannot see that this represents a significant issue.”

katherine.denham@ft.com