In a muddle about investment management fees

In a muddleI am a  fan of a firm of investment consultants called Lane Clark &Peacock LLP, who true to their brand statement provide “insight, clarity and advice” on pensions matters.

I am also a recurring pain in their neck and I expect one dark night on Old Burlington Street I will be bashed over the head with one of their weighty actuarial tomes for my insolence and rank ingratitude.

Nevertheless I am returning once again to do some mild LCP -bating;  starting with the preamble to their 2013 “investment management fees survey”

Focusing on fees has never been more important than today. Against the background of an uncertain and low growth environment, paying high fees will significantly impact your fund’s performance.  The survey reveals that pension funds are losing out as market movements generate more than 2.5x in fees for managers than their performance.

Fallacy one; fees are more important in a low growth environment. This is tosh; 1% of £1m is £10,000 whether it represents a quarter of the growth of the fund or one tenth. £10,000 has to be earned and paid by the sponsor of the pension fund and it is no easier or harder to earn that money in a low growth than high growth environment. It’s a lot easier to get people to pay attention to a fee that represents 25% of growth than 10% but the fee is equally important whatever the environment.

And if anyone thinks that all this fees hull-a-bulloo will  blow over when we get some market growth back, they are sorely mistaken

Fallacy two; The survey reveals that pension funds are losing out.

The survey reveals nothing unless LCP let you read it.  To read it you have to fill in a form which is vetted by LCP.

The form has a number of compulsory fields;

  • First name is mandatory
  • Last name is mandatory
  • Title is mandatory
  • Email address is mandatory
  • Email address type is mandatory
  • Company is mandatory
  • Job title is mandatory

Whoah – and I just wanted to find out what I was paying for my funds like I’m told to!

There are a number of voluntary fields including one that asks your relationship with LCP with the following drop-down options “Client, Ex-Client, Intermediary, None”.

Sounds a bit like linked in who will ban you if you try to link with people you don’t know!

I wonder how many intermediaries are going to risk being rejected by submitting a form to “register for the download”. I wonder how many people who have no relationship with LCP will dare?

Well I am a lucky one and I have had the pleasure of reading this survey including this message from Will Goodhart

Clients and potential clients should know about the full range of types of fees and charges which will be applied against their assets.

Will is the CEO of the CFA Society of the UK, which, according to its website

“serves society’s best interests through the provision of education and training, the promotion of high professional and ethical standards and by informing policy-makers and the public about the investment profession”.

Which begs my question

if what we are all trying to do is be transparent about fees, why can’t everyone see the report?”

TM (pending) Henry Tapper (not to be reblogged or even read by anyone I don't like or I'll jump up and down and cry a little)

The report itself is beautifully presented over 38 pages; it contains a particularly nice photo of Andrew (Andy) Cheseldine who sounds as public-spirited as Will Goodhart

Pension charges will continue to be put under the microscope by politicians and press alike and rightly so. Our job at LCP is to help ensure as much transparency as possible , identifying what separate charges and costs apply.

The substance and value of the report is some great data crunching and data presentation that shows just how wide the gap is in charges between the “cheap as chips” beta managers and the hedgies.

“The annual management charge for a fund of hedge funds mandate is 10 times the equivalent fee for either a passive equity or bond mandate”

The report points out that we can only guess at the true costs incurred by hedge fund managers who for the most part can’t even bother to have the conversation.

To test this I did a little market research on a group of three “hedge fund managers” parenting children playing in a cricket game yesterday. In answer to the question “do you tell your clients what you charge them?”  I got a unanimous response

“f**k off”

It is a truth , universally acknowledged, that the more money you make, the less inclined you are to tell people how you made it.

I am not quite sure what the CFA has in mind as “best practice”, but the response appears to be “market practice”

And while the report is brilliant in charting the “knowns”, it admits to not knowing much about “transactional costs” (aka hidden fees)

Over 65% of respondents provided no transaction cost information and, as such, there is insufficient data to conduct a meaningful analysis.

“As such?” – as what?

Can I direct the honourable gentle people to this link

If they press this link, they will be able to find the data that is provided by Morningstar on the funds of the fund managers listed on pages 36 and 7 of their report.

The true and fair calculator will give LCP data on the “Estimated Annual Cost of Fund Manager’s Buying & Selling” going into the detail of portfolio turnover rates and dealing charges.

This information is provided free by the owners of the Calculator (Alan and Gina Miller) and there is absolutely no need to “register to download”. It is total nonsense to suggest there is not enough “meaningful data” to conduct  a meaningful analysis. Just ask!

Which begs a further question

If the information that LCP cannot publish in a report that we cannot access is freely available on the web, could LCP be doing its job better?

I’d say

“No and yes”

No, because this is a great report and I’d love to scan every page below to show you what it shows me about the behaviours of differing types of investment managers. I don’t because I have read the disclaimers on the back and am probably pushing it as it is.

Yes, because LCP (and other consultancies) need to stop being so anal about their “intellectual property” and share it with all of us as Alan and Gina do.

There is still stuff that commands a premium price, some market intelligence which I and others would pay for. LCP produce a fair amount of it.

However, the cost of the funds that we as retail investors, institutional investors or those who advise investors, are in the business of using, is not something that anyone need pay for and the ABI, IMA, NAPF, SPC, FCA, CFA and I suspect in the final analysis LCP, know that to restore confidence in funds investment, we need to be TRUE AND FAIR.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to In a muddle about investment management fees

  1. Mark Nicoll, Partner says:

    I read your blog on our 2013 investment management fees survey with much interest and thank you for the coverage.

    Needless to say, however, I do not agree with all of the points you make. One thing in particular that needs clarifying is the question of access to the report. The report is available to all, well I mean all those with a computer and internet access. Indeed, as well as pension funds and investment managers, many of our competitors have registered and downloaded our surveys in the past. For this fees survey we also provide a very useful additional (optional) box so that any individual can ask us to contact them for further information, although the default is that we will not make contact unless invited to do so.

    Thanks again for taking the trouble to read our report.

    Best wishes


  2. henry tapper says:


    It would be good to put this on your website. I suspect that most people don’t want to register as a refusal offends.

    I certainly assumed that this was a client or prospective client offer and it’s good to hear not just from you , but from readers who have commented elsewhere, that your report is generally available.

    If LCP wants a social media officer, I would be happy to assist pro bono!

  3. I read the chaos of investment management fees. Good analysis Henry.

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