Funds Must Play Fair With Fees

EDITOR'S VIEWS: We need more fund groups to start putting their investors first, and why we should all start talking about financial advice

Holly Black 14 June, 2019 | 11:10AM

editor

The ongoing Woodford saga has been a stark reminder of some of the reasons why investment trusts are often a better vehicle through which to invest than open-ended funds. Let’s not forget another important virtue of closed-end funds, though: they are very often cheaper.

Play Fair With Fees

This week Lindsell Train Investment Trust (LTI) announced plans to trim its annual charge by five basis points to 0.6%. It’s hardly reinventing the wheel, but it is a recognition of the fact that just because a manager's assets have grown, it does not follow that their costs do too, and that should be applauded. 

Put simply: it does not cost any more for a firm to run £10 billion of assets than it does to look after £1 billion. 

The reluctance of many fund houses to pass on the economies of scale to their investors is one of my biggest bugbears about this industry. It is just one example of how, all too often, the end investor is just not a fund manager’s priority. Which is a pretty silly way to go about business really – after all, without investors’ hard-earned money, none of these funds would even exist.

An investment trust, unlike a fund, has an independent board to hold the manager to account – they are working on the side of investors and it is in aspects such as charges that you can often see this.

One argument often wheeled by fund groups out is that “you get what you pay for” and a manager who delivers consistent outperformance is quite within their rights to charge more because they’re worth it.

If you agree with this argument, I would point you in the direction of Scottish Mortgage investment trust (SMT) as just one example to illustrate my case: a stellar performer, it has delivered a return of 164% over five years compared to a sector average of 86%. It’s annual charge? 0.37%.

We need more fund managers to start playing fair when it comes to fees.

Shout it From the Rooftops

The experience of visiting a financial adviser is quite a bizarre one, really. Discussing the intricacies of your finances with a stranger is probably the most un-British thing I can think of.

That makes finding a good adviser who you like and trust all the more important – after all, you are charging them with guiding you to a comfortable retirement, making sure your family are provided for, and generally managing your money in the most efficient way possible and giving it the best chance of growing over the long-term.

So, it’s worrying that 43% of people (and 68% of women) don’t know how to find an adviser. That’s probably not entirely true – I’m sure most people would know how to find an adviser, but they might not necessarily know how to find one they’re comfortable with.

And that is probably how many people end up using robo-advice and online solutions.
These definitely have their place and they can be a helpful, low-cost solution for simple issues but sometimes you can’t beat a proper face-to-face conversation with an actual human being.

If you have a financial adviser, tell a friend, shout it from the rooftops! If we all start talking about this stuff more, maybe it will stop being so scary and inaccessible. 

Tracker Troubles

There are tens of thousands of ETFs and tracker funds on the market – whittling down the options is a daunting task for even the most seasoned of investors. Just because a fund has a simpler remit and no active manager, it doesn't mean you don't need to do your homework.

But if you have 100 different funds all offering to track the same stock market, how are you supposed to choose between them? Performance is identical, charges are minimal and they all invest in the same basket of stocks.

Our new ETF Due Diligence series is going to get under the bonnet of eight of the major providers in the market over the coming weeks to try and help, and we’ve started with iShares, a behemoth with more than 300 trackers and 44% of the market share in Europe.

If you’re tempted by trackers, this series is well worth a read.

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Lindsell Train Ord1,922.50 GBP1.99
Scottish Mortgage Ord533.00 GBX2.21

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites