War on rip-off charges that cost investors £1.4bn
Rip-off investment charges which cost savers more than £1.4billion a year are being targeted as part of a crackdown by the City watchdog.
The financial regulator has set out reforms to stamp out unfair fees in Britain’s £8.1trillion asset management industry.
Millions of savers are unwittingly handing over huge commissions – docked from their investments – to financial advisers every year.
The payments are passed on by fund managers as part of deals struck many years ago, and can reduce someone’s savings by more than £2,000 over 20 years.
The financial Conduct Authority stopped short of a total ban on the payments, known as ‘trail commission’. But it issued rules that will force fund managers to prove they are providing value for money, and to consider whether it is best for savers to be moved from expensive old funds into newer, cheaper versions.
Kevin Doran, of stockbroker AJ Bell, said: ‘for far too long, many fund providers seem to have forgotten just whose money it is they manage, hiding behind vague objectives and excessive charges.’
James Daley, of consumer group fairer finance, said: ‘What we want is to see all consumers paying trail commission end up being charged a fair price. it’s time for the asset management industry to step up now and do the right thing.’
Before 2013, fund managers routinely paid financial advisers commission from savers’ pots – for recommending customers to their fund.
‘Forgotten whose money it is’
Every year the adviser would get a percentage of the savers’ return, on the basis that advisers would continually review their customers’ investments. in reality, some advisers did nothing, but still pocketed the money.
in 2013, new funds were introduced that stopped handing over these payments.
But it is thought a third of British savers are languishing in old funds that still charge trail commission. it means savers who invested in a fund from 2013 onwards pay up to 0.5 per cent less a year, or £50 on a £10,000 pot, than someone who invested in exactly the same fund earlier.
A £10,000 investment growing at 7 per cent a year in an old, expensive fund would return £27,703 over 20 years, according to fund supermarket Bestinvest. But someone who invested in the same fund after 2013 would receive £29,953 over the same period – £2,250 more.
The fCA is forcing firms to be clearer about their objectives to investors and to produce an annual report showing how they provide value for money. The fCA’s Christopher Woolard said: ‘our market study found evidence of weak price competition in a number of areas. Today’s announcements are an important part of a package of measures that aim to achieve a fair, transparent, open and accountable market.’
Chris Cummings, of trade body the investment Association, said: ‘We strongly support a greater emphasis on communication as well as governance to help customers better understand what they are investing in, what they are paying for and what they are getting in return.’