Why can’t we know what we pay for “fund management”?

'You're doing a little better since we deworsified your portfolio.'

We have the right to know what we are paying for funds. The cost of a fund can best be defined as the difference between what you would have received from a theoretical return on the assets in the fund and the actual return achieved on those assets.

So if the return, based purely in the movement in prices of the assets was 10% and the fund returns 8%, the cost of the fund is 2%. Taking percentages out of this, you would have paid £2,000 for every £100,000 you invested in the fund.

The word “theoretical” is important. You cannot invest without costs and investing through a fund can be cheaper than a DIY approach, especially if you are looking to actively manage the fund.

Very few people can be bothered to manage their own portfolio so the issue on charges and costs is not about a race to the bottom. It is about “value for money”.


If a second  manager can manage the same assets for £1,000 rather than £2,000, then it’s up to the more expensive manager to justify the extra cost. To demonstrate value for the money.

The Investment Management Association (IMA) has been under pressure to get their members to give us a fair means to compare fund management costs. However it has failed and is failing to get this done.

In a series of hard-hitting articles, fund manager Alan Miller and his wife Gina, have turned from poacher to gamekeeper , asking the questions of their trade body, that we as consumers have difficulty in asking.

This is their latest article, printed by kind permission of the authors (with some formatting changes). It is worth reading by anyone involved in purchasing funds either on their own behalf or on behalf of others.


The original of this article can be found here

Outraged by the industry mouthpiece’s (IMA) response to the recent damning Financial Services Consumer Panel (FSCP) report ‘Investment Costs – More Than Meets the Eye’, the True and Fair Campaign is issuing this statement pointing out how the IMA is misleading the public, regulator, politicians and journalists.

Instead of accepting the constructive criticism in the FSCP Report, written by respected experts and academics, and putting every effort into speedy, practical and understandable solutions, it appears the IMA is intent on being disingenuous by issuing false statements

“The IMA has now developed a new measure that tells consumers, in pounds and pence, exactly how much a unit in a fund grew over the course of a year and how much it cost to achieve that performance. Every penny spent by the fund is included in this figure and so it provides a simple, accessible, all-inclusive measure of all costs. Nothing is hidden and nothing is left out.
“Pounds and pence disclosure goes beyond any regulatory or legal requirement and is a big step forwards for consumer understanding. We expect it to be in place next spring, but there is more to do. The IMA is working on ways to measure and explain the significance of both portfolio turnover and spread and the part they play in returns”.
We invite readers to judge how the IMA proposed cost table
below tallies with its claims – where are the costs in £?


It is not all the costs, and in addition, publishing this table in the back of the
annual report one year after purchase, will amount to it still being hidden.

Here are the cost disclosures explained:

  1. The new measure is NOT ‘in pounds and pence’.
    It is a % per unit figure which has not been converted into pounds and pence. Consumers will need to know how many units they hold in order to convert this into any meaningful pounds and pence figure.
  2.  The new measure does NOT show exactly ‘how much it cost to achieve that performance’.
  3. Transaction costs or performance fees are shown separately rather than included in the
    reported ‘operating costs’. Fundamentally, it does not include the element of transaction
    costs known as spreads which can be an additional 85% of the total costs within funds
  4. It also completely excludes ALL transaction costs within a fund held by another fund (known as a “fund of fund”). The new measure is therefore NOT showing ‘every penny spent by the fund’.
  5. The new measure is NOT ‘simple’ The table contains 13 different numbers, 14 if the fund has performance fees. To work out the actual cost in pounds and pence requires the operating charges to be added to the disclosed ‘direct’ transaction costs and the performance fees, and then the undisclosed ‘indirect’ transaction costs to be calculated by the investor themselves, and then converted into pounds and pence by multiplying the number of units held.
  6. The new measure is NOT “accessible’. The IMA has indicated their half-baked disclosure will be within a fund’s annual statements. These statements are usually received by investors 12 –18 months AFTER they invest and few investors ever look at these statements anyway.
  7. It is FALSE that ‘nothing is hidden and nothing is left out’
    As stated in point 2 above, the IMA’s proposed solution leaves out up to 85% of the overall transaction costs according to recent CASS Business School research and has not even bothered to add up these costs or many other costs to produce a single reported number, or converted this number into a consumer understandable pounds and pence charge; we therefore challenge that it is a “simple, accessible, all-inclusive measure of costs”.
  8. It is disingenuous for the IMA to say that it is ‘working on ways to measure and explain the significance of both portfolio turnover and spread and the part they play in returns’ when it was the IMA itself that stopped its members having to report fund turnover in June 2012.
  9. Two years later and t h e y h a v e n o t p r o p o s e d a definitive measure. Furthermore, the IMA apparently wants to put in meaningless statements in fact sheets that the fund turnover was ‘High’ or ‘Low” with no proper quantification of the .

The True and Fair Campaign is also surprised that the dossier of other negative findings within theFSCP Report has not been seriously acknowledged by the industry or debated. This independent, academic report confirms what the Campaign has been saying for three years and notable esteemed academics and commentators have been saying for many more years:
 full charges can be up to 4x the headline charges
 there is no genuine price competition
 funds can arbitrarily choose how to allocate many costs
 economies of scale tend not to benefit the consumer
 performance reporting is misleading
 closet indexation is rife.
Gina Miller, Founder of SCM Direct & the True and Fair Campaign said, “We have known for years that the industry has been failing investors and the FSCP Report outlines these failings in black and white. The public, politicians, media and regulators should not be misled any longer by the industry association which continues to tow an anti-consumer line.

“We believe the majority of fund managers want to do the right thing rather than have their reputation for honesty and ethics crucified by false and misleading statements from their industry mouthpiece, the IMA.

“Rather than tackling industry failings and embracing change the IMA continues to harm the UK investment industry and treat British investors with distain. Continuing to deny investors fundamental rights and being treated fairly and with respect must not be left to deeply conflicted industry trade bodies.”


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to Why can’t we know what we pay for “fund management”?

  1. mark coomber says:


    There will be, of course, an additional cost to providing all this information:

    1. Someone has to pay for that additional cost, and it won’t be the fund management company or its shareholders (some of which may already be the investor’s existing collective/pension fund(s).

    2. What proportion of investors will both to read the additional disclosed information (and understand it)

    3. The information can only be backward looking and, like performance figures, is no guide to the future

    So, IMHO, I can’t really see that there would be much benefit. Better to re-direct such resources to other areas where the benefit will be appreciated.

    BTW, when was the last time anyone asked the checkout person at Tesco for a breakdown of the costs of the groceries right down to the fuel costs of the lorry that delivered items to the store, the cost of the tyres on the lorry etc. We all know that these costs exists but do we really care what they are? No, of course not. Life’s too short.

    • henry tapper says:

      The people who do that due diligence are the analysts who make sure that the financial statements of Tesco are accurate. And of course they aren’t (always!).

      Tesco have just retrained their staff to make sure that in future the numbers add up – I hope that they will be able to share the numbers with the people who analyse them and I hope that the fund managers who analyse Tesco’s numbers can share their analysis of the costs of their dealings as transparently.

      It amazes me that fund managers are keen to see transparency in the financial statements of the companies they invest in but don’t provide similar to those who invest in them!

  2. Adam Saunders says:

    I’ve seen the comment about comparing charges for financial products to shopping before and I’ve been wondering why they don’t quite seem to fit. I think the reason is, that when I buy a banana from Tesco – I’m buying a banana. I’m not expecting the banana to provide me with a financial return (although being an eternal optimist I live in hope!)

    If I’m buying a financial product though (to carry on with the shopping analogy), I’m buying a whole bunch of bananas in the hope that at some point in the future I’m going to end up with even more bananas (I do like bananas). Tesco however are mysteriously going to take some of my bananas, but they’re not really going to make it clear how many bananas they’re taking. If they’re going to take some of my bananas, I don’t really care what they’re going to use the bananas for – I just want to know how many bananas they’re taking for themselves.

    Because then if I think Sainsbury’s will take less bananas from me – I can go and do my banana shopping there in the future…

    • henry tapper says:


      Providers who keep bananas for themselves and don’t tell me (thinking I can’t count) are bad news. The trouble is that they take the bananas from the inside of the bunch (so I can’t find out till too late!

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