Barely a month has passed this year without a high-profile attack on the asset management industry over controversial issues such as high fees, poor investment performance, hidden charges and short-termism.
The concern in the asset management industry is that the next attack will come from a source the market cannot afford to ignore: regulators. Indeed the Financial Conduct Authority starts scrutinising the appropriateness of charging retail investors entry fees.
Before 2013 it was standard practice in the retail fund industry to charge investors this one-off fee, also known as an initial charge, to cover the cost of marketing and distributing a fund.
However today, many UK fund companies have abolished the fee, or waive it for retail investors who buy funds through investment platforms such as Hargreaves Lansdowne or through financial advisers. But several asset managers continue to impose an initial charge if investors buy a fund directly from the company.
Guillaume Prache, Managing Director of BETTER FINANCE declared that the practice of charging entry fees is not just a UK phenomenon. He says: “Most retail funds in Europe still include entry fees. This practice is very widespread, especially with unaware and elderly investors and savers. Average entry charges in France on unit-linked products (a form of retail fund) were 2.6 per cent in 2015. This is very detrimental to retail investment returns, especially in a low-yield environment. Worse, the impact of these initial charges on returns is not disclosed to retail investors in the mandatory past-performance disclosures. We are not aware of any EU national regulator having banned or even restricted fund entry fees.”
Most of the fund companies contacted for this piece gave confusing or conflicting answers when asked why they still apply initial charges, and whether they would consider scrapping them.
Please find the full article from the FT here.