Savers 'are losing £19bn in hidden fees'
Obscure charges make comparison shopping all but impossible when it comes to pensions and other investments
Millions of people with money invested in funds and pensions are being failed by an industry that is charging excessive, unfair and often hidden charges that total billions of pounds, according to the Financial Services Consumer Panel (FSCP).
The body, which advices the Financial Conduct Authority, is unhappy that most pension and investment funds display the annual management charge as the cost of the investment but that can make up as little as a quarter of the actual cost. That is because many of the charges are taken directly from the funds so remain hidden from investors.
The panel is calling for clearer breakdowns of charges so that investors can make more informed decisions about where they put their money.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
"It is completely unacceptable that consumers do now know what firms are charging them to manage money on their behalf and cannot compare them with their rivals," the panel told The Times.
According to research by wealth manager SCM Private, the real cost of hidden charges is up to £19bn a year across pension and investment funds. Charges can make a huge difference to the value of your savings – just a 1 per cent annual management charge adds up to 24 per cent of a pension pot over a working lifetime, according to the Department for Work and Pensions.
What are these hidden charges?
Most fund groups quote the annual management charge (typically around 0.75 per cent) and an ongoing charge that covers costs such as custody and audit fees (pushing the total fee up to 0.85 per cent on average). But, the FSCP state that there are many more charges being levied on most funds.
"In particular, it argues the ongoing charge takes no account of the transaction costs, such as broker's commission and stamp duty, which managers incur when they buy and sell shares in their portfolio," says Mark Atherton in The Times.
Another hidden cost is the 'spread' – the difference between the buying and selling price of a stock. This can typically add between 0.27 per cent and 0.4 per cent to the total fund cost.
What can be done?
The FSCP is calling for a new annual management charge to be introduced that covers everything from transaction costs to the current management fee.
"Fund management firms could be required to quote a single and comprehensive annual charge that included estimates of 'forward costs' such as transaction charges," says Rupert Jones in The Guardian , following an interview with a member of the FSCP.
"All the other costs that are currently deducted directly from the fund would be borne by the firm, thereby enabling consumers to compare different firms' charges, and acting as a 'powerful incentive' to improve efficiency."
Panel member Teresa Fritz said: "If consumers really knew the true cost of investment management, it might drive some to take their money out and put it into savings accounts."
Create an account with the same email registered to your subscription to unlock access.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
Passenger: 'pleasingly off-kilter' ITV crime drama
The Week Recommends There's 'plenty to be feared' in this British murder mystery set in a quiet northern town
By Adrienne Wyper, The Week UK Published
-
Crossword: March 27, 2024
The Week's daily crossword
By The Week Staff Published
-
Sudoku hard: March 27, 2024
The Week's daily hard sudoku puzzle
By The Week Staff Published
-
What is dynamic pricing, and how will its increasing adoption affect your wallet?
Speed Read The practice of adjusting prices based on demand is becoming more common
By Becca Stanek, The Week US Published
-
How does the realtor settlement affect buyers and sellers?
The Explainer The shift is expected to reduce the cost of buying and selling a home
By Becca Stanek, The Week US Published
-
What should you do if you can't pay your tax bill?
The Explainer Here are some options to help you pay the IRS what is owed
By Becca Stanek, The Week US Published
-
Planning to apply for a mortgage? Prepare financially in these 4 ways first.
The Explainer Get all your ducks in a row
By Becca Stanek, The Week US Published
-
The average credit score is dropping. Here is what to do if yours starts to slide.
The Explainer Follow these steps if your credit score has followed the trend
By Becca Stanek, The Week US Published
-
How long should you hold on to tax documents?
the explainer Here is what you need to keep and how long to keep it
By Becca Stanek, The Week US Published
-
When is it worth hiring someone else to do your taxes?
the explainer Here is what to know before hiring a pro
By Becca Stanek, The Week US Published
-
4 steps to get back on your feet financially after identity fraud
speed read The more proactive you are, the greater chance you have of mitigating the impacts
By Becca Stanek, The Week US Published