‘Hyperbolic and inconsistent comparisons do not help investors’, says Fidelity
Fidelity calls for full disclosure of fund and distribution costs
Implementation of a new measure – “Total Cost of Ownership” – to help investors compare different funds and providers
London, 31 January 2012: Fidelity Worldwide Investment today called on the asset management industry to create an industry standard to bring greater transparency to investment charges. The international asset manager urged the industry to work together to develop a standard approach to disclosing the total cost of owning a fund. This follows Fidelity FundsNetwork’s decision in September 2011 to become the only fund supermarket to separately show fund manager, adviser and platform charges, as it looks to create a more transparent market.
Gary Shaughnessy, UK Managing Director at Fidelity Worldwide Investment, comments: “Today Fidelity calls for an industry standard and urges all areas of the asset management industry to work together to make it easier for investors to see the total cost of investment and compare different investment products. We believe that the charging structure on funds should be simple, easy to understand and not discriminate against smaller investors.”
Analysis of the most popular UK funds available through FundsNetwork, Fidelity’s investment supermarket, shows that, outside the initial cost of investing in a fund in the first place, the average total cost of owning a typical actively-managed £10,000 investment is £16.67 per month or £200 (around 2%) a year. The ongoing monthly or yearly cost to the investor covers the cost of investment management, any advice given, the provision of service and administration as well as unavoidable charges such as dealing costs and stamp duty.
Fidelity is calling on the industry to develop a standardised system to display the breakdown of costs to investors across their fund ranges. The format is, of course, open to discussion but we believe it should include all the elements in the following illustrative examples:
Table available at: http://www.realwire.com/releases/Fidelity-Calls-For-Industry-Standard-To-Make-Fund-Charges-More-Transparent
Source: Fidelity as at 27/01/2012.
Shaughnessy continues: “We are seeing selective and partial ‘Ryanair’ pricing start to emerge which runs the risk of misleading investors about the real costs they are paying. A consistent way of showing charges is essential to restoring investors’ trust in the industry and encouraging them to feel confident to save for the future. Investment funds can provide a cost-effective way for investors to benefit from stock market growth and achieve their longer term goals. However, a lack of clarity around costs is distracting from the real benefits that investing in funds has brought to millions of people in the UK and around the world. The communication of these charges needs to be more accessible to investors, visible at the point of purchase and brought into real “pounds and pence” terms.
“The current debate on charges is a healthy one, but many comparisons are misleading and suffer from hyperbole. Some companies are only presenting part of the picture and, crucially, they are failing to show the cost of advice or the cost of the platform without which investors would not be able to access the fund. Others have very high minimum investments and are only available to high net worth individuals. There are a lot of headline figures currently being bandied about but they do little to help investors understand the true cost of investing or to evaluate whether these costs are fair and reasonable for the service they are receiving. What will really help investors is a transparent and standardised cost breakdown in pounds and pence.
“Of course, investors should not focus on cost alone as, although the return earned by an investor will of course be impacted by charges, it will not be the final determinant. What a fund invests in, how the manager invests and the tax advantages available via some products can be even more important.”
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