Why investors deserve bigger slice of cake

IAM a big believer in investment funds, of all shapes and sizes. For a majority of investors, they represent the most sensible way to accumulate longterm wealth, whether it is through the tax efficient wrapper of a pension or Individual Savings Account, or as part of a broader investment portfolio.

Even more so in today’s investment world where fund portfolios can be self-managed so easily online. Funds, unlike direct shares, provide investors with diversified exposure to companies, markets and assets. In many (not all) instances, they also offer access to quality investment management.

Unlike some commentators or newspapers, I am not an advocate for any particular segment of the diverse funds industry that this country houses.

Low-cost exchange traded funds which track specific markets, stock market-listed investment trusts and actively managed investment funds all have their particular merits (and drawbacks).

Yet it does not mean that all is perfect in the investment funds world. Investors should not have to witness their returns denuded every year by excessive charges, especially when the company managing their money has failed to perform up to expectation.

They deserve a fairer deal. Of course, investment companies need to make profits but not at investors’ expense. This current imbalance between company and investor interests needs to be addressed as a matter of urgency which explains why City regulator the Financial Conduct Authority is currently looking into how the asset management industry can provide investors with better value for money. Greater transparency in charges is one of the issues at the top of its agenda.

Slowly but surely, some investment companies are (thankfully) becoming more consumer focused. As we report on Page 100, Scottish Investment Trust, a longstanding global fund, has striven to reduce its charges in recent years. The result is that its ‘ongoing charge’ – an amalgam of the regular fees it levies against the trust – has reduced from 0.68 per cent two years ago to 0.49 per cent. In other words, if Scottish turns your £10,000 into £11,000 (pre-charges) over the course of a year, it will shave off just short of £54 in charges. Two years ago, it would have reduced your return by nearly £75.

There are numerous rival investment trusts that manage to keep their ongoing charges down below 0.5 per cent. You can find out which ones by visiting websites such as Trustnet or Morningstar. Interestingly, lower charges do not result in inferior investment performance. In Scottish’s case, shareholders have enjoyed a belter of a year. There are loads of investment trusts out there delivering similar stellar returns without charging investors the earth. They are worth searching out.

Yet there are still many investment funds and some investment trusts which have ongoing charges in excess of one per cent. They will surely come under pressure over the next year to cut these fees to give investors a bigger slice of the cake.

In the funds space, some companies are responding as Scottish has done in the investment trust arena. Baillie Gifford, an excellent investment manager based in Edinburgh, has just cut the annual management fee on its Baillie Gifford American Fund from 0.65 per cent to 0.5 per cent. This follows recent management fee reductions on two of its trusts, Baillie Gifford Japan and Edinburgh Worldwide.

Baillie Gifford, owned by its partners, is determined to drive down fees for the end investor. Not just on grounds of fairness but because it believes it gives the company a competitive edge against rivals.

Lower fees, it hopes, will attract more investors, thereby increasing the assets under its wing. A virtuous circle. Other investment managers should follow this lead. IT WAS pop band Hot Chocolate who in 1975 encouraged me to believe in miracles. So I hope 2017 is the year when miraculously a government decides to sort out the mess that is pensions.

It is a gargantuan task. Most defined benefit company pension schemes are in deficit with a regulator doing little to get employers to plug the black holes. We have a state pension that continues to discriminate against many women and a rulebook for private pensions which a brain the size of Stephen Hawking’s would struggle to get to grips with.

So, Philip Hammond, esteemed Chancellor of the Exchequer, please make 2017 the year when finally a government gets to grips with pensions. Make pensions easier (and safe) to invest in.

Slowly but surely some funds are becoming more consumer focused. Others must follow