We’re probably all familiar now with the sneaky way that banks fail to move customers’ money to accounts with higher rates of interest, or even tell them about better deals that they can offer them.
Well, UK asset managers are doing exactly the same thing to investors — only the amount of money involved is generally far, far higher.
When fund managers were banned under the Retail Distribution Review introduced in 2013 from paying commission to advisers, many of them cut the fees they charged new investors. The Financial Conduct Authority also told them to move existing investors to cheaper versions of their funds, known as an “unbundled share class”.
But, according to data from Fitz Partners, a fund research company which specialises in calculating how much investors pay, more than two-thirds of the assets managed for retail investors remained in the more expensive funds in 2015. As a result, investors paid around £2 billion a year more in fees than they would have done if they had been moved to cheaper funds.
In a report on the study by Aime Williams in the FT, Professor Andrew Clare, chair of asset management at Cass Business School, is quoted as saying:
“These results go to show how hard it is to rid the industry of its dependence upon and liking for the old world of commission.”
Meanwhile, Daniel Godfrey, former chief executive of the Investment Association, said the figures “sounded pretty horrendous”.
“You could question whether some managers are talking the talk and not doing as much as they should,” he said.
As ever, the industry is complaining about the complexity and administration involved in making the changes being asked of them. In this case, the Investment Association is saying that its members would have to ask every client whether or not they want to have their money moved. Of course they want to have it moved! Why wouldn’t they? Does the Investment Association seriously think that consumers are happy to pay far more to invest than they need to?
An even easier option, surely, would simply be for fund providers to reduce the cost of the older share classes unilaterally.
Once again, asset managers know perfectly clearly what, morally, they should be doing, and yet they continue to treat consumers with contempt by not getting on and doing it. It’s time the FCA got tough and started to hand out heavy fines to firms that continue to short-change their customers.
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
