Annual Fund Charges Must be Clear

Fund companies must use a new term to describe annual fees that includes all transaction costs and management charges on all marketing information

Investment Management Association 13 May, 2014 | 4:15PM
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This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Daniel Godfrey, the chief executive of the Investment Management Association (IMA) praises developments in the fund charging rhetoric.

The Ongoing Charges Figure is exactly what it says on the tin – it includes all the charges an investor can expect to pay on an ongoing basis, that is the management of the fund by the fund manager, administration and operational costs of running the fund, fees paid to the depository, auditor and regulator. The figure is expressed as a percentage per annum of the value of your investment.

The Investment Management Association’s guidance has long been that member firms should not refer to the Annual Management Charge in marketing literature, but should exclusively refer to the OCF.

The OCF provides a common standard for all the known costs and charges that a fund will bear in a single comprehensive ratio that is easy to understand and to compare.  This is in stark contrast to the AMC because a range of other costs can be borne by the fund, making the AMC a poor reflection of the total cost at worst, and a poor basis for comparison at best.

The IMA calls on all market participants, fund managers, platforms, IFAs, data providers and the media to respond by abandoning all use of AMCs and by the exclusive use of the OCF in marketing literature, advice and commentary.  This is an important element of the IMA’s programme to bring simplicity, transparency and comparability to consumers across all investment types. 

In addition, we aim to produce a comprehensive ‘pounds and pence’ measure for historic costs and a common basis for the calculation of Portfolio Turnover Rates.

Consumers need information that ensures they get a complete picture and that they can fully understand.  And this needs to apply across all products and all distribution channels.  I’m grateful for the FCA’s support and we look forward to working with them to get to the right solutions for consumers across the board.

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Investment Management Association  represents the UK investment management industry. Our members manage over £4.5 trillion of assets

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