UK investors over-charged by funds
London, September 24, 2013
British investors are being over-charged by mutual funds, whose managers often copy industry benchmarks rather than pick financial investments themselves, according to a report published on Monday.
Research by the True and Fair Campaign, which lobbies for clearer charging by fund managers, shows around 40 per cent of a typical UK equities fund is effectively a copy of weightings in the overall stock market.
However, investors are often paying for "active" fund managers who aim to outsmart competitors and beat benchmarks.
These funds can cost up to three times the fees for passive funds that merely match the market and are commonly used as a cheap way to access an asset class or sector.
This could have cost British investors 3 billion pounds ($4.8 billion) in excess charges over the last five years, according to the report.
The True and Fair Campaign is spearheaded by Alan and Gina Miller who run SCM Partners, a boutique wealth manager that invests client money into exchange traded funds, tracking indexes.
They have become prominent critics of charging structures in investment management and last year launched a campaign to impose a standardised code for disclosure of fees.
According to their latest report, nearly half of the British fund industry is guilty of "closet indexing".
Investors are largely unaware of this, Gina Miller said, because of a lack of transparency in the funds industry.
"Because UK funds only have to report what they own once a year, most investors will be unaware that in many cases they are often misled into buying something which turns out to be just an illusion," she said.
The Investment Management Association was not immediately available for comment. - Reuters