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M&G to Simplify Fund Fees

Fund giant M&G is simplifying its fund fees and will pass on economies of scale to investors as assets under management grow 

Holly Black 17 June, 2019 | 3:45PM

fees

M&G is to reduce its fees as a fund grows its assets, in an overhaul of its charging structure.

The investment giant is to cut fees by up to 50 basis points on its range and will start to pass on the economies of scale to investors as funds get bigger.

M&G will bundle up the costs involved in running a fund including administration, audit fees and custody charges into one annual charge figure, to better help investors understand what a fund will cost and to make the annual fee more predictable. Transaction charges (the costs of buying and selling holdings) will not be included in the single figure but will be added on top. 

Under the new structure, investors will get a 0.02% discount on the annual charge when a fund reaches £1 billion of assets under management. This rises to a maximum discount of 0.12% for funds managing £6 billion or more. 

But Morningstar analyst Louise Babin thinks M&G's shake-up could have gone further. She points out that the most significant reductions would be to "dirty share classes", which include trail commission charges.

She added: "Of the clean share classes eligible for a 4 basis point or higher discount just one has seen its overall headline fee reduced by more than 2 basis points.

"Only two funds - M&G Recovery and M&G Global High Yield Bond - have a new fee rate that we consider cheap relative to peers. For the rest, the new fees are broadly in line with their peers or are still more expensive." 

M&G says based on figures at the 31 May, some 12 funds in its range will benefit from reduced charges due to their size including the £2.4 billion Silver-rated M&G Global Dividend fund and the £3.5bn Silver-rated M&G Corporate Bond fund. The changes will take effect from 1 August. 

Ryan Hughes, head of active portfolios at AJ Bell, said the move would make it easier for investors to work out how much they are paying in fund costs each year. However, he points out that many of M&G’s are still quite expensive compared to similar funds. 

“At its greatest, the pricing change will mean a 50 basis point cut for investors, but almost half of the share classes will see no reduction or less than 10 basis points knocked off the cost, so you need to check each fund to see if you’re winning from this move.”

The Silver-rated M&G Optimal Income fund will its annual charge fall by 7 basis points, a saving of £7 a year for every £10,000 invested in the fund. The current ongoing is a hefty 1.41% and the fund has a negative score on price from Morningstar analysts.

The Bronze-rated M&G Recovery fund currently has an ongoing charge of 1.66%. Its fee will fall by 35 basis points. 

Babin added: "While we welcome the direction of travel, we believe that the group has missed an opportunity to set the standard for value ofr investors, in particular given its scale of assets." 

An M&G spokesman said: “We are simplifying the way we charge for our funds so that our costs and charges are easier to understand and more predictable. In additional to this, we have reviewed the pricing across the Oeic range and are introducing discounts to our large funds to pass on potential savings from economies of scale.”

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.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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