Millions of the UK’s investors are losing substantial capital due to the excessive charges being placed on their investment funds, pensions, ISA’s and stock holdings, according to a damming report released this week by an advisory body to the UK’s primary financial watchdog.
The Financial Services Consumer Panel (FSCP) noted that a sinister method for practical non-disclosure relating to charges exists within fund management firms, and that there is poor governance combined with numerous conflicts of interest.
The retail investment market is worth £1 trillion, but in its current guise, does not work “in the best interests of consumers”, the report concluded.
Transparency
The only realistic way to address this unfortunate anomaly within the British finance industry – an industry supposedly with one of the highest levels of regulation globally – would be for fund management companies to be upfront about their fees and take a single annual management charge. The FSCP, while making this suggestion, also said that the charges would undoubtedly “shock” many investors not used to seeing where such a huge percentage of their money goes.
Deductions and charges are usually debited to funds without the clients’ knowledge, yet the reduced capital these charges yield, has a deep impact on the relative returns on investment.
The trend in the UK moving forward is likely to be that a growing number of savers rely on investments as an integral part of securing their future, particularly in light of the pension reforms and the horribly predictable notion that these legislation amendments are sadly never likely to end.
Unacceptable
The strongly worded report also states that it is “completely unacceptable that consumers do not know what firms are charging them to manage money on their behalf, and cannot compare different offers”.
The financial industry in the UK is certainly very far from transparent, in fact it was only in the last 12 months that the UK’s financial advisors were forced to forgo the usual huge commission they were able to obtain from certain financial products and simply charge for advice, a move that saw many leave the industry.
While the UK’s financial advisors were able to get many a good year in the sun out of the comms industry, it was always an avenue of pleasure destined to be closed for good at some point. The fund management charges, however, are likely to be addressed with far more urgency by the FCA. The idea of an upfront and transparent charge will be resisted and challenged by the industry as they will be scared of their clients knowing exactly what the costs they charge relate to, however it is seen by the panel as a matter of urgency.
