The chief executive of the Investment Management Association (IMA) has hit out at media reports about fund managers imposing so-called hidden charges, labelling them “irresponsible scaremongering”.
In his latest blog post, Richard Saunders says a typical newspaper report on funds will claim managers add charges on top of their fee without telling investors and hurt performance by taking extra money to cover the cost of trading.
However, Saunders points out that these allegations are flawed in a number of ways. Firstly, charges on top of the management fee, like those for other services such as trustees and auditors, are included as part of the total expense ratio and disclosed up-front to investors, as demanded by European law.
In addition, he claims the evidence does not support newspapers’ assertions that ‘hidden’ trading costs – which in any case are necessary payments to brokers and do not go to the managers themselves – have a damaging effect on investors’ returns.
The IMA has carried out research comparing funds’ average net returns, their TERs (total expense ratios) and their performance against a relevant index, the chief executive notes. This concluded that investors do not lose out from trading charges, as the gains created by active management tend to outweigh any cost incurred by making trades.
“I called these stories irresponsible scaremongering. Those are strong words, but justified,” Saunders says.
“It is scaremongering because it puts misleading figures into the public domain. And it is irresponsible because it is telling people they should not be saving for their future, when the responsible advice is that they should.”
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