‘Hyperbolic and inconsistent comparisons do not help investors’, says Fidelity
Fidelity calls for full disclosure of fund and distribution costs
Implementation of a new measure - “Total Cost of Ownership” - to help investors compare different funds and providers
London, 31 January 2012: Fidelity Worldwide Investment today called on the asset management industry to create an industry standard to bring greater transparency to investment charges. The international asset manager urged the industry to work together to develop a standard approach to disclosing the total cost of owning a fund. This follows Fidelity FundsNetwork’s decision in September 2011 to become the only fund supermarket to separately show fund manager, adviser and platform charges, as it looks to create a more transparent market.
Gary Shaughnessy, UK Managing Director at Fidelity Worldwide Investment, comments: “Today Fidelity calls for an industry standard and urges all areas of the asset management industry to work together to make it easier for investors to see the total cost of investment and compare different investment products. We believe that the charging structure on funds should be simple, easy to understand and not discriminate against smaller investors.”
Analysis of the most popular UK funds available through FundsNetwork, Fidelity’s investment supermarket, shows that, outside the initial cost of investing in a fund in the first place, the average total cost of owning a typical actively-managed £10,000 investment is £16.67 per month or £200 (around 2%) a year. The ongoing monthly or yearly cost to the investor covers the cost of investment management, any advice given, the provision of service and administration as well as unavoidable charges such as dealing costs and stamp duty.
Fidelity is calling on the industry to develop a standardised system to display the breakdown of costs to investors across their fund ranges. The format is, of course, open to discussion but we believe it should include all the elements in the following illustrative examples:
| Charge | Typical amount for an actively-managed fund, expressed in % and £ for £10,000 investment | Typical amount for a low-cost active fund, expressed in % and £ for £10,000 investment | Typical amount for an index tracker fund, expressed in % and £ for £10,000 investment |
| Investment management charge | 0.75% (£75 a year or £6.25 a month) retained by fund manager | 0.40% (£40 a year or £3.33 a month) | 0.1% (£10 a year or 83p a month) |
| Other service and administration charges (eg legal and custody) | 0.14% (£14 a year or £1.17 a month) passed on to service providers | 0.2% (£20 a year or £1.67 a month) | 0.2% (£20 a year or £1.67 a month) |
| Cost of advice or distribution | 0.5% (£50 a year or £4.17 a month) | 0.5% (£50 a year or £4.17 a month) | Nil (for Moneybuilder UK Index but advice or distribution charges may apply in other cases and are often excluded from illustrations) |
| Platform administration charge | 0.25% (£25 a year or £2.08 a month) | 0.10% (£10 a year or 83p a month) | Nil (for Moneybuilder UK Index but platform charges may apply in other cases and are often excluded from illustrations) |
| Stock Market dealing costs and Government stamp duty | 0.36% (£36 a year or £3 a month) | 0.25% (£25 a year or £2.08 a month) | 0.09% (£9 a year or 75p a month) |
| TOTAL ANNUAL COST OF OWNING A FUND (based on investment of £10,000) | 2.00% (£200 per year or £16.67 a month) | 1.45% (£145 a year or £12.08 a month) | 0.39% (£39 a year or £3.25 a month) Typical advice and platform charges through non Fidelity distribution channels could increase the total cost of ownership significantly |
Source: Fidelity as at 27/01/2012.
Shaughnessy continues: “We are seeing selective and partial ‘Ryanair’ pricing start to emerge which runs the risk of misleading investors about the real costs they are paying. A consistent way of showing charges is essential to restoring investors’ trust in the industry and encouraging them to feel confident to save for the future. Investment funds can provide a cost-effective way for investors to benefit from stock market growth and achieve their longer term goals. However, a lack of clarity around costs is distracting from the real benefits that investing in funds has brought to millions of people in the UK and around the world. The communication of these charges needs to be more accessible to investors, visible at the point of purchase and brought into real “pounds and pence” terms.
“The current debate on charges is a healthy one, but many comparisons are misleading and suffer from hyperbole. Some companies are only presenting part of the picture and, crucially, they are failing to show the cost of advice or the cost of the platform without which investors would not be able to access the fund. Others have very high minimum investments and are only available to high net worth individuals. There are a lot of headline figures currently being bandied about but they do little to help investors understand the true cost of investing or to evaluate whether these costs are fair and reasonable for the service they are receiving. What will really help investors is a transparent and standardised cost breakdown in pounds and pence.
“Of course, investors should not focus on cost alone as, although the return earned by an investor will of course be impacted by charges, it will not be the final determinant. What a fund invests in, how the manager invests and the tax advantages available via some products can be even more important.”
- ENDS -
Notes to Editors
* Figures for typical actively-managed fund based on average costs across 18 of the top 20 most popular UK funds on FundsNetwork for which information was available and £10,000 invested. Low-cost active fund illustration is Fidelity’s Moneybuilder Dividend Fund. Tracker illustration is Fidelity’s Moneybuilder UK Index Fund. Source: Fidelity as at 27/01/2012.
Fidelity Worldwide Investment is a global leader in asset management, providing investment products and services to individuals and institutions in the UK, continental Europe, the Middle East and Asia Pacific. Established in 1969, the company has over 5,000 staff in 24 countries and manages or administers client assets of £165.5bn. It has over 7 million customer holdings and manages more than 740 equity, fixed income, property and asset allocation funds. The company’s fund managers receive research from one of the largest proprietary research teams, based in 12 countries around the world. Fidelity Worldwide Investment is an independent asset management company which is privately owned. Data as at 30 Sept 2011
Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Any opinions expressed are made at the time of writing and can be subject to change without notification.
For further information, please contact:
Anne Read
Fidelity Worldwide Investment
020 7961 4409
07850 549 839
anne.read@fil.com
Keren Holland
Fidelity Worldwide Investment
020 7074 5262
07852 330 870
keren.holland@fil.com
Press Office Address: Fidelity Worldwide Investment, 25 Cannon Street, London, EC4M 5TA
Fidelity Worldwide Investment is a global leader in asset management, providing investment products and services to individuals and institutions in the UK, continental Europe, the Middle East and Asia Pacific. Established in 1969, the company has over 5,000 staff in 24 countries and manages or administers client assets of £165.5bn. It has over 7 million customer holdings and manages more than 740 equity, fixed income, property and asset allocation funds.
FIL Limited and its subsidiary companies serve the major markets of the world by providing investment products and services to individuals and institutional investors outside the US. Issued by Financial Administration Services Limited, authorised and regulated in the UK by the Financial Services Authority. Fidelity, Fidelity Worldwide Investment, FundsNetwork™, the Fidelity Worldwide Investment and FundsNetwork® logo and the F symbol are trademarks of FIL Limited.
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