Eb­bing tide

Fund charges keep fall­ing

The Daily Telegraph - Your Money - - FRONT PAGE -

The cost of investing has fallen dra­mat­i­cally over the past decade as tech­nol­ogy, a push for trans­parency and the rise of cheap tracker funds com­bine to push down fees. It’s now pos­si­ble to buy a global share port­fo­lio, in­clud­ing the in­vest­ment plat­form’s fee, for less than 0.5pc an­nu­ally.

Here are the main fac­tors driv­ing down the cost of your in­vest­ments.

1. Tech­nol­ogy

Far more of the in­vest­ment process has be­come au­to­mated – run by com­plex al­go­rithms and sim­ply over­seen by hu­mans.

The daily re­bal­anc­ing of a typ­i­cal “pas­sive” fund that tracks the mar­ket is now al­most en­tirely au­ton­o­mous. “Ac­tive” man­agers, who se­lect shares rather than fol­low the mar­ket, ben­e­fit too, in large part from the abil­ity to screen huge num­bers of stocks quickly, at min­i­mal cost.

For both ac­tive and pas­sive man­agers, the ac­tual process of investing has also be­come more ef­fi­cient.

Plat­forms are sav­ing in­vestors sig­nif­i­cant amounts too. It is now pos­si­ble to in­vest in al­most any fund through a low-cost plat­form with­out a sub­stan­tial ini­tial fee – which used to be stan­dard in investing.

2. Trans­parency

There is an enor­mous push for ac­tive fund man­agers to be more trans­par­ent about the fees they charge. In­vestors can now eas­ily com­pare funds’ fees and per­for­mance on­line, and aware­ness of the im­por­tance of fees is grow­ing. The Fi­nan­cial Con­duct Au­thor­ity last year re­leased a damn­ing re­port that con­cluded that ac­tive fund fees were too opaque and tended to “clus­ter” around price points. It sug­gested that man­agers use an “all-in” fee to make it even eas­ier to com­pare costs. If im­ple­mented, this would in­crease the pres­sure to re­duce fees fur­ther. How­ever, some port­fo­lios will nat­u­rally have higher costs if they in­vest in niche as­sets such as hedge funds. Third Point Off­shore In­vestors, for ex­am­ple, the Guernsey­based hedge fund trust, charges a 2pc man­age­ment fee, plus a per­for­mance fee.

3. The rise of tracker funds

The fo­cus on fees and the un­der­per­for­mance of many ac­tive man­agers has driven more in­vestors to­wards low-cost “pas­sive” investing – tracker funds.

As more money flows into pas­sive funds, their economies of scale grow and as a re­sult they get cheaper.

4. Com­pe­ti­tion

Pas­sive funds have a choice of com­pet­ing in­dexes to track, but the only real way for them to dif­fer­en­ti­ate is on price. If an as­set man­ager of­fers the cheap­est tracker fund for a pop­u­lar re­gion or sec­tor it can at­tract large amounts of money.

The num­ber of ac­tive funds avail­able means that ac­tive man­agers have greater com­pe­ti­tion too. The tech­no­log­i­cal gains men­tioned pre­vi­ously have low­ered the bar­ri­ers to en­try in as­set man­age­ment.

Amid an in­creased num­ber of providers, and with so much at­ten­tion fo­cused on fees, price is one area that can be used as a sell­ing point.

Third Point Off­shore In­vestors, a hedge fund trust based in Guernsey, above, charges 2pc a year. Left, Holly Mackay

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