I was quite shocked and very disappointed to read the following article in the Money Section of the Sunday Times yesterday.
It appears that, even in 2021, some providers are still able to disguise the true cost of buying and holding funds on their investment platforms. This is particularly galling to me because the rules around cost disclosure for Financial Advisers are so very clear and rigorously enforced.
The article below was written by David Blenchly:
Fund fees that are three times more than you think!
“Investors are asked to pay on average almost twice as much in fees as the “at a glance” costs shown on the websites of the largest investment platforms. In some cases, the full cost of buying and holding a fund is almost three times as much as the charge advertised on the fund overview page, according to research from SCM Direct, the wealth manager run by Alan and Gina Miller, who campaign for greater transparency in the investment industry.
Two decades on from research by the City regulator — the Financial Services Authority at the time — showing that up to 50 per cent of fees were hidden, little has been done to rectify the problem, Alan Miller said.
“In any other area this would almost certainly be deemed illegal or mis-selling,” he said. There is no regulation to stipulate exactly how and where full charges should be displayed.
SCM’s research looked at the breakdown of fees on Hargreaves Lansdown and Fidelity for the 20 largest funds within the UK All Companies sector.
It found that the average at-a-glance net charge shown on Hargreaves for funds in the sector was 0.78 per cent. Yet when platform costs, transaction costs and performance fees were factored in, the full charge was 1.5 per cent.
The average fees on the initial page of Fidelity’s site were 1.07 per cent. Yet the total charge was 1.49 per cent, including performance fees and platform costs.
For the JPM UK Equity Core fund, Hargreaves showed a net charge of 0.33 per cent. When all the charges were added up, the fund cost 1.09 per cent.
On Hargreaves, investors must click on the “costs” tab at the top of the fund page to learn of all the charges. A Hargreaves spokesperson said: “Our fact sheets clearly detail all the costs investors will pay for their investment including the platform fee, and after deducting the savings HL clients enjoy.”
For Fidelity you must click on the “charges & documents” tab for more, but not all, fee information.
“We do not show the service charge here as it can vary for different customers,” Fidelity said. Fidelity gives no breakdown of how much this might add up to.
It added: “We are careful to ensure customers know what they are paying for. The key stats page and the charges and documents page show the fund charges clearly. We highlight, ‘Please note that service charges will also apply.’ The cost of a fund and service charge is shown in the pre-sales illustration document.”
Summary
I am genuinely concerned that some investors eschew financial advice because they think it is too expensive and that they can do better on their own by investing via sites such as Hargreaves Lansdown, mentioned above. When we actually look at this equation properly, we see that access to high quality financial advice is actually very affordable by comparison.
As an example, a client with Clearwater will pay the following for our full, comprehensive Financial Planning service. The annual percentage figures assume an ISA portfolio of £500,000 invested on Transact and in Portfolio EBIP 60 (the most popular portfolio):
As we can see from the article above, the real average cost of investing with Hargreaves Lansdown is 1.50% per annum and not the 0.78% per annum advertised. Thus, the true, additional cost of engaging the services of a Chartered Financial Planning firm amounts to just 0.092% per annum; I like to think we are worth it but you will be the better judge.
I completely agree with the Millers that this wilful lack of transparency by these platforms should be illegal or, at best, deemed mis-selling.
For the record, the Clearwater charges outlined in the table are fully inclusive, including an allowance for trading, as is required by the Financial Conduct Authority.
As always, if you have any questions about the above or any other related financial matter, please do not hesitate to get in touch.
Yours sincerely,
Graham Ponting CFP Chartered MCSI
Managing Partner
