Revealed: the £5bn of savings sat in ‘rip-off’ funds

Halifax criticised for charging fees 10 times higher than rivals, writes Harry Brennan

‘If you are paying an annual charge of more than 1pc you are being ripped off’

Savers have £ 5bn invested in 40 funds charging up to 15 times more than rivals that provide exactly the same service, a Telegraph Money investigation has found.

Tracker funds, which follow a market benchmark index such as the FTSE 100, were designed to minimise the cost of investing. However, some fund managers charge fees as high as 1.5pc a year even though rivals do the same thing for just 0.1pc.

Halifax, one of Britain’s biggest banks, has come under fire for charging its customers “rip-off” fees via its basic investment funds on more than £1bn in savings. The bank, which offers customers a range of stock market investments, was among a number of firms accused of levying egregiously high charges on tracker funds, also known as passive funds, which can be bought for virtually nothing at cheaper providers.

Such funds aim to replicate the performance of particular markets by buying every company included in an index. This contrasts with “active funds” that try to achieve higher returns by buying only certain stocks; these funds have larger overheads thanks to the costs of research, trading and salaries for managers.

The simple nature of tracker funds has meant investors can own them for as little as 0.1pc a year in annual management charges.

But Halifax offers funds that charge 10 times this amount. Customers who have invested in funds that track the FTSE 100 and FTSE All Share indices are charged as much as 1pc.

This can make a difference of tens of thousands of pounds to returns over the years. A £20,000 Isa would be worth more than £ 80,000 after 30 years assuming annual investment returns of 5pc and a 0.1pc fee. With a 1pc fee, the same pot would be worth less than £65,000.

Over the past decade, investors with £20,000 in Halifax UK FTSE 100 index trackers C, D or G – which all charge 1pc a year – have been left roughly £3,000 worse off than those who invested in the iShares 100 Equity Index, a virtually identical fund that charges just 0.06pc (see chart).

Laith Khalaf, of stockbroker AJ Bell, said customers were being “ripped off ”.

He said: “If you’re paying an annual charge of over 1pc for a basic tracker fund, you’re being ripped off, because similar funds are available for a fraction of that price. Over time, annual charges mount up and will leave you significantly out of pocket.”

Rival money managers L& G and OneFamily were also among the worst offenders, charging annual fees of up to 0.85pc and 1.5pc respectively for certain passive funds.

Halifax said its most expensive tracker funds were sold between 2002 and 2012 and included additional fees for investment advice. It said the funds were no longer available to new customers following a tightening of the rules by the City regulator, the Financial Conduct Authority, in 2012.

It added that it “proactively” switched customers in the high- fee funds to cheaper alternatives with the same investment strategy, but only after 20 years. Customers still have more than £1bn in the “rip- off” funds, according to figures from data firm Morningstar. A spokesman for Halifax said the firm believed its fees represented “value for money”.

L& G’s most expensive tracker also included charges for advice. The fund is no longer actively sold, although it is still available and still contains more than £750,000 of investors’ money.

L&G said it “regularly monitored” its charges to ensure it offered value, while a spokesman for OneFamily said its fees were “entirely transparent”, with no extra costs for administration or separate platform fees.