Virgin Money has come under fire for failing to lower the fees on one of its index tracking funds, which currently costs investors more than 350 per cent more than near identical products.
Steven Nelson, head of research at financial services consultancy firm the Lang Cat said the excessive fees on the Virgin Money’s UK Index Tracking Trust have been highlighted in the national media as long ago as 2014, but the company has refused to cut them.
The passive fund which simply tracks the FTSE All Share index charges 1 per cent, more than those levied by many active funds in the UK market where a fund manager is paid to make daily decisions about the investment.
With assets of nearly £3bn at the end of 2017, according to FE data, this one passive fund alone will net Virgin Money annual revenue of around £30m.
The total cost of ownership of investment products has been a focus of attention from the Financial Conduct Authority, with the regulator pushing for an "all-in fee" to force fund houses to be more honest with customers about what they are paying and the performance they are getting in return.
Jason Butler, who was a wealth manager for 25 years before becoming what he calls a 'financial wellbeing expert', said tracker funds are essentially a “commodity product”, that is, there is no difference in the quality of one product relative to a rival, and so there should be no huge difference in the price.
He particularly cited the price discrepancy of the Virgin Money fund relative to what he said is a comparable product at low-cost fund house Vanguard.
The ongoing charge for passive funds in Vanguard's flagship Lifestyle Strategy range is just 0.22 per cent. The charge on Virgin Money's tracker is 354 per cent more expensive by comparison.
A spokesman for Virgin money said: "Virgin Money is committed to a clear and transparent approach to charging and has a single charge on its investment tracker funds.
"Many providers promote what may seem to be low charges, but then have a range of other fees including initial charges, platform charges and exit fees.
"Some also impose restrictions such as a high minimum investment which excludes many investors. We provide access to the FTSE All Share Index at any level of investment." .
David.Thorpe@ft.com
