Candid Financial Advice has stopped recommending M&G and Jupiter funds to its clients as it is concerned about the groups’ inflated administration fees on their funds.
The fund groups have recently said they take annual percentage administration fees from their funds on top of their annual management charges.
However, the IFA firm reveals any extra fees to cover admin expenses were retained by the group instead of rebating them back to the funds.
Normally, administration fees are incorporated into the annual management charge making up a fund’s annual ongoing charge.
Candid Financial Advice director Justin Modray calls M&G’s and Jupiter’s practice “unfair” and “immoral” although not excluding other fund groups of doing the same.
He says: “Our research has led to M&G and Jupiter both admitting that they charge blanket percentage fees to cover administration expenses, with any surplus retained by them rather than being rebated back to the funds.
According to the firm, M&G, which charges 0.15 per cent a year for admin expenses as stated in its latest published long annual report, collected £94m in administration fees from its 15 largest funds over the last year.
Of this figure, £34m came from the Richard Woolnough’s £15.5bn M&G Optimal Income fund.
The Jupiter European fund, for example, had an admin fee of £8.6m and charged a total AMC of £36.4m in the year ending 30 June.
Among the top 20 largest funds in the UK, some other funds appear to have a higher admin expense compared to the rest of the group including the Scottish Widows UK All Share Tracker, with a registration fee of £7.9m, the M&G Global Dividend fund with £10bn as well as the Fidelity Income Builder fund with £3.7bn in fees.
These funds charged an AMC of £763,000, £79.2m and £18.4m respectively.
Modray says: “This appears to be blatantly unfair to customers. If a fund’s value increases by 25 per cent due to rising markets then M&G’s and Jupiter’s expense claims will also rise by 25 per cent, despite there being negligible extra work. Furthermore, the shift towards investors buying funds via investment platforms means the administration work carried out by fund providers is decreasing quite significantly.”
He adds: “It’s time for the fund industry to come clean and absorb all ongoing fund costs, except for dealing charges, in a fully inclusive annual management fee, as Neil Woodford has done on his Equity Income fund. “
An M&G spokeswoman says: “We fully disclose the cost of investing in an M&G fund to our customers in both the Key Investor Information Document and the annual report. Our charges, before the cost of portfolio transactions, are expressed as the ongoing charge figure.
“A small part of the OCF – 15 pence of every £100 invested – is allocated to administration costs, which cover such items as the maintenance of the share register and the distribution of income to customers.”
Jupiter couldn’t immediately comment on the findings.