Fidelity and Legal & General (L&G) have raised the registrar’s fee on their tracker funds. The news comes at a time when Vanguard’s arrival in the British retail market threatens to trigger a passive fund price war.
Fidelity increased the registrar’s fee by 0.03 percentage points. This means the total expense ratio (TER) on its MB Index fund will rise from 0.27% to 0.3%. The TER on L&G’s index tracker will increase from 0.53% to 0.55%.
“It is very disappointing that these managers have increased the charges on these funds, and it seems a strange time to do so,” says James Norton, the director of Evolve Financial Planning (which offers clients only passive funds). Norton doubts that registration costs have risen by the amount of the increase.
“What it does do is make Vanguard, the new entrant to this sector, look even more attractive,” he says. “Cost is crucial to a passive strategy and investors should seek the lowest-cost providers.”
Fidelity was unavailable for comment, but L&G says the change was made to ensure transparency and fairness in relation to fund fees. According to L&G, under the previous method some customers were not being charged correctly as they held their investment in a nominee account or via a platform. This may have resulted in others paying more.
Under the new system everyone will pay the correct amount, the group says.
Norton says: “Index investing is gaining traction in the UK, so to raise costs now seems counter-intuitive.” The 0.03 percentage point increase for Fidelity may seem small, he says, but it is actually a rise of over 10%.
However, Norton says the Fidelity and L&G funds remain reasonably competitive.
Ian Shipway, the director of investments at Bluefin Wealth Management, says managers have to cover their costs, regardless of how much they want to be competitive. He expects not only tracker funds but also actively managed funds to come increasingly under pressure.
“The marketplace is becoming more aware of low-cost vehicles. All asset managers will have to look at their cost basis,” he says.
In June, HSBC said it planned to cut the annual management charges across its index-tracking fund range.