It’s maddening that investment charges are still so complicated
THIS week, the Financial Conduct Authority (FCA) has come under pressure to implement more stringent measures on the way investments are managed, particularly when it comes to communicating fees to customers and improving the overall transparency of charges. But this is all backward. It should be companies leading the charge for transparency, because that’s what customers want.
For far too long, the industry has hidden charging reality behind opaque costs and complicated language, even after the introduction of the Retail Distribution Review (RDR), which was meant to clean up some of the sub-standard practices. With Isas and pensions firmly in the investment spotlight, it won’t be long before over-charging and under-performing investment managers have nowhere to hide.
We are fortunate to have a regulator that wants to offer up principles for companies to live by. But if these high level overtures are ignored, there is no alternative for those who govern than to impose rules, and ultimately punishments.
It seems that RDR and frequent mis-selling scandals haven’t been enough to motivate participants. This week’s conclusions set forward by the Financial Services Consumer Panel show that even fund managers may not know exactly what extra costs and charges they are passing on to their customers.
If those making the products don’t know how much they cost then consumers have no chance! It’s high time every chief executive mandated that their company will only sell things employees understand, can explain, and where all fees are absolutely clear. As we saw in the financial crisis, if this doesn’t happen, the result will be the construction of complicated products that lead to destruction of value.
I believe those involved in the investment profession should charge one simple fee and nothing more. It should be the responsibility of the wealth manager, fund manager or IFA to keep all costs as low as possible, to prove they are working hard to deliver better net returns. After all, returns cannot be guaranteed, but charges certainly can.
The single charge should include any set-up, admin, commission and other fees. Additional costs should be estimated upfront and then recorded and documented when known on a regular statement. That way, people know exactly what they’re getting and how much they’re paying for it.
We built Nutmeg on this ideal of complete transparency and it’s frankly maddening to see that the rest of the industry hasn’t realised that they need to be equally open with customers. The consolation for us is that investors are voting with their wallets.
Some money managers make a lot of their multi-hundred year history, but in our world of service and performance that doesn’t mean much. Maybe when the other companies have realised that investors will accept nothing less than full transparency, it will be them, not the regulator, driving change for the better.
Nick Hungerford is chief executive of Nutmeg. www.nutmeg.com