Investments  

UK fund fees among lowest globally

UK fund fees among lowest globally
 

Fund fees in the UK are among the lowest in the world, according to data published by Morningstar.

UK-domiciled funds have a median cost of 0.83 per cent for allocation, 0.84 per cent for equity and 0.55 per cent for fixed income, the company's latest Global Investor Experience study has found.

The report showed that the majority of the 26 markets studied had seen lower fees since 2019, when the first study was published, most notably in allocation and equity funds.

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However, the UK has seen the most significant drops in fund costs. 

It said in the UK, investor-friendly regulation, such as the banning of front loads as a means of paying commissions to distributors, and the separation of advice fees from embedded ongoing charges as one of the main reasons for the lower fees.

Despite the UK leaving the EU, it added, the UK’s laws still conform to EU directives, meaning that investors have the choice of whether to invest in locally domiciled funds, as well as Ucits funds operating under temporary permissions from the Financial Conduct Authority.

The expense ratios of funds domiciled in the UK (the costs of portfolio management, administration, marketing and distribution) is also lower than those outside the UK.

Andy Pettit, director of policy research at Morningstar, pointed to the introduction of the retail distribution review and value assessments as big drivers of the UK’s low fees.

“It is now commonplace for investors to pay a fixed fee or percentage of assets to an adviser directly for investment advice, which also resulted in the mass creation of share classes that investors can purchase without paying a load or retrocessions.

"It also opened some institutional share classes to retail investors with minimum investment amounts waived,” he said.

The introduction of value assessments for fund houses in 2020, after the FCA discovered weak price competition and high fees in its landmark asset management review, has stopped a “race to the bottom” for fees, Pettit added.

“Value assessments help in that they’re looking not just at the price but at other elements of service including performance, administration and economies of scale," he said.

“I think that helps give a bit of balance and stop that pressure to race to the bottom, and at this point I think it has been a healthy balance.”

He added the introduction of value assessments has been a big success, saying: “I think it has been one of the best pieces of regulation in a long time.

“I know there are lots of quibbles about the quality of the reports in some cases and the lack of prescription from the FCA, but the results have spoken for themselves.”

In the past year, as reported by FTAdviser, fund houses such as Baillie Gifford, St James’s Place and Quilter have put funds on watchlists, and in some cases closed funds, when they deemed that they had not returned value.