Alan and Gina Miller are good people. They have invested their money, experience and time to develop a website that allows you to work out what you are really paying for your investments– whatever the wrapper you put them in.
Here’s the web-address www.trueandfaircalculator.com
It’s free to consumers (the fund managers will eventually pay to be listed) and it works. You need to know a little about what you invest in to be sure you are keying in the right fund and you need to understand the mechanics of the platforms to use the advanced section but even I can work things through the Standard approach without any practice!
What it shows is what we’ve been finding out through work published by the FSA (as long ago as the early noughties) and subsequently by Which, Terry Smith‘s Fundsmith organisation and Norma Cohen of the FT.
In a low inflation/low growth world, we can pay as much to have our money managed as we can reasonably expect in growth on our money.
While in nominal (eg pounds shillings and pence) terms, the cost of investment doesn’t increase, the impact of charges in terms of the reduction in “real”growth has increased as real returns have fallen (matters could be even worse if inflation hadn’t been artificially depressed by quantitative easing).
Looking through the assumptions that sit behind the machine, I am quite surprised at how generous Alan and Gina have been to the fund managers. The estimates of the “spreads” that managers pay when buying and selling investments within the funds are much lower than other research has suggested (or in some cases the managers admit to). These guys may actually be under-cooking their own arguments – a pleasant change from normal practice!
“True and Fair” get their data from Morningstar and builds on work pioneered by the Securities and Investment Committee in the USA. I have to say, their site is rather more user-friendly than the American versions – especially as you don’t have to trespass on a lot of Government property to get to it!
Best of all, the machine allows you to make comparisons between your funds and similar funds that do the same job. I was speaking with a lady yesterday whose company has a DC scheme whose default fund is priced at five times the cost of my default fund. We agreed that her fund probably did more but I’ll be sending her the link this morning to show her the impact over five, ten , fifteen and twenty years of the extra cost her staff are auto-enrolling into.
This is the big point here. You would not go into a shoe shop and buy the prettiest shoes in the window without reference to price. You would weigh up the “opportunity cost“, those Jimmy Choo look great but could you ever afford to show them off at an expensive event?
The benefit to the consumer is obvious; the benefit to the investment management industry is not so obvious, but it’s there all the same. This machine will increase competition, drive out inefficiencies, increase respect for managers (with an eye to costs )and encourage those with the wealth to save to serve themselves.
Let’s hope that organisations who run funds platforms – Hargreaves, Fidelity and the like, grab this model with both hands. I am in a state of “tremor-cordens” at the prospect of housing this engine in the “costs and charges” section of www.pensionplaypen.com and I will be thoroughly recommending it to all visitors to our new site as I do to you!
- A democratic way to improve DC investment. (henrytapper.com)
- “Nothing to do with us guv” – a sideways look at the FCA’s rules for platforms (henrytapper.com)
- The Penn Mutual Life Insurance Company Announces Penn Series Fund Sub-Adviser Changes Available Under Variable Life and Annuity Products Effective May 1 (prweb.com)
- Campaigners warn of ‘horrendous’ true fund costs as firms mull plan to make them declare all fees (thisismoney.co.uk)
- A New Way Of Calculating The Brutal Arithmetic Of Fund Fees (forbes.com)
- Don’t Waste Your Hard Earned Retirement Savings on High Fees and Taxes (You Could Lose as Much as Your Original Investment in Unnecessary Costs) (prweb.com)