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Make no mistake, big changes are coming to the fund management industry. There are big pieces of EU legislation in the pipeline. The hyperactive Financial Conduct Authority is looking into various issues such as how research is paid for. And the industry’s own body, the Investment Management Association, is calling for changes to the way information is presented.

But the Financial Services Consumer Panel, a statutory body that advises the regulator, said investors should not have to wait that long. It has released a hard-hitting report today focusing on the subject of charges in particular.

Among its recommendations are that fund providers should quote a single and comprehensive annual charge, and that costs currently deducted by the investment manager directly from the fund should instead be borne by the investment management firm.

It’s also argued for a “fiduciary duty” to act in investors’ best interests, saying that the current principle of “treating customers fairly” lacks legal force and conflicts with profit maximisation.

Everyone agrees that costs should be made clearer. The IMA is already proposing a single “pounds and pence” figure that would include not just the fund manager’s charges, which are known in advance, but also a historic breakdown of things such as trading costs, which are often difficult for investors to ascertain.

According to Fitz Partners, a consultancy, trading costs vary from about 0.13 per cent of assets for liquid markets like US shares, to more than 0.3 per cent for smaller companies and emerging markets, where trading costs are higher.

The IMA’s proposal might fix the problem of customers not realising how much they are being charged, assuming that the information is placed where it can be easily found and not buried in small print.

But the FSCP said fund providers should just charge a single clearly disclosed fee every year that includes all the costs of running the fund. Customers should know exactly what they are going to pay before they buy. And if a provider spends more on trading or marketing than it expected, then it should pay for that expenditure itself, rather than charging it to the fund. This will incentivise providers to be more efficient, the FSCP report said.

That seems perfectly reasonable. Critics of the funds business point out that there are few other industries where consumers buy things without actually knowing how much they will end up costing. Many other industries have to absorb all the costs of doing business themselves, rather than simply passing many of them on to the customer. And the regulator has acknowledged in the past that simply providing exhaustive information does not necessarily result in consumers making better choices.

The FSCP said it realises that such a structural change would be significant and that the industry would be likely to resist it, but argues that two decades of very little progress suggests the incremental approach hasn’t worked. It’s certainly right about that.

Jonathan Eley is editor of FTMoney. jonathan.eley@ft.com. Twitter: @jonathaneley

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