Fat cats feel the pressure
By Mike Narouei, Content Producer at Boring Money
30 June, 2017
This week, the financial regulator released a paper which has reminded the fund manager cats that they need to curb their appetites when it comes to what they charge and how they charge. The regulator supports a simpler all-in fee, will scrutinise the investment platforms we tend to buy through, and work to make fund managers clearer about what their products are setting out to do. Good stuff.
Many fund managers make chunky margins. 36% is the average operating margin. High as a kite. The sector is not competitive and we tend to pay a similar fee for the good, the bad and the ugly. The catchily-named OCF (Ongoing Charges Figure) is typically about 0.75% – 0.85% for most actively managed funds but there are extra bits and pieces, principally transaction fees, which get added in a largely opaque way to the total fees we pay today. The industry has argued for years that trying to calculate and include transaction fee costs is impossible to do in advance. How can they know how much they will trade and what it will cost? This has always struck me as a daft PR own-goal from an industry which tries to tell us how good at maths, forecasting and anticipating the financial future it is. Work it out, people!
The watchdog’s report supported a single fee, containing absolutely everything, which has to be calculated in the same way by every firm. No hidden extras and we get a refreshing dollop of transparency and (probable) lower prices. Great. The only snag here is that it’s not compulsory and not today. The regulator is “testing” and “supporting” and “consulting” and aaaaaagh! This debate has been going on for years and it’s time for someone to stamp their foot and shout “Get on with it!”
The better fund managers see the direction of travel and will amend pricing strategies accordingly. Along with improved communications and clarity all round. We’ll be tracking this at Boring Money over the coming months and reporting back on who’s doing a good job.