“I’m not interested in active versus passive any more,” a London-based financial adviser told me the other day. “The argument has been won. What I’m interested in now is transparency.”
He’s right about active versus passive. Not that you’d have guessed it from reading the UK financial media, which for the most part continues to fly the flag for active management. The argument that, for the typical investor, active funds are still worth paying for has been completely demolished.
I also agree that transparency is now the burning issue. When investors are able to see, in black and white, how much it’s costing them to invest in actively managed funds, and how little value they’re receiving in return, most will no longer do so. They will choose instead to invest at much lower cost in funds that are guaranteed to deliver, near enough, the market return.
Of course, the industry knows this, which is why individual fund providers and trade bodies like the Investment Association are working so hard to keep the cost of investing opaque.
I have been subject to some iniquitous bullying in recent weeks by representatives of the asset managers and insurers threatening me with legal consequences if I did not shut up.
This process of bullying is part and parcel of the PR machine that supports the (industry) and for several decades it has allowed (it) to take fees from savers without disclosing them.
These fees range from bundling research into trading costs, not sharing stock lending, not controlling the dealers and traders executing trades and charging all kinds of exotic expenses to the net asset value of the funds we save into. The cost of each set of fees may seem small when expressed as a percentage of the fund, but when taken together, these extra costs can reduce the amount of our pension pot by up to a third.
Now, at last, the story is starting to come out. The Financial Times, which has done more than any other British newspaper to hold the industry to account on this issue, ran a front-page story on Saturday about new research, commissioned by the Transparency Task Force, which shows that UK pension savers are routinely being hit by more than 100 different fees and charges, many of them hidden.
Andy Agathangelou, the founding chair of the Task Force, described the hiding of charges from consumers as “just plain wrong”.
“Our findings prove that David Cameron and others have been absolutely right to suspect that hidden pension schemes costs are a barrier to the consumer getting the value for money that they deserve,” he said.
Tom Tugendhat, the Conservative MP who appealed to the Prime Minister to tackle fund managers on transparency in the House of Commons two weeks ago, said: “I suspect people will be very surprised by the findings of this research. This is about fairness. People have a right to know where their money is going. I am looking for clear standardisation of charges so you can compare like with like.”
The Task Force will shortly be presenting the findings of this research with the Financial Conduct Authority, as part of a review the FCA is holding into competition in the UK fund industry. Let’s hope that, this time, the FCA stands up to the fund lobby and demands change.
Fee transparency will have enormous benefits for UK investors. It will also mean we can put this tired old active versus passive debate to bed. Let’s hope, as well, that it allows Henry Tapper to carry on blogging without the threat of legal action.