Blackrock. City of London. 10/1/17
© Anna Gordon/FT

The total cost of investing in popular funds, including those run by Janus Henderson, BlackRock and Vanguard, is up to four times higher than first thought, FTfm can reveal today.

The Mifid II trading rules, which came into force this month, have forced asset managers to disclose hidden charges. They can no longer provide just an ongoing costs figure (OCF), the industry’s standard measure of running costs. Instead, asset managers and fund distributors must give the total cost, including transaction or trading costs and other charges.

Analysis by FTfm and Lang Cat, the asset management consultancy, shows many investors pay almost double the OCF in the UK’s most popular funds once transaction costs are included. This can go up to four times OCF if platform charges and performance fees are included.

Mike Barrett, Lang Cat director, said the size of hidden costs that investors were being saddled with was a “real eye opener”.

“It is undoubtedly good that this clarity is here now. But it is grimy that it has taken some EU regulation for asset managers to tell investors what the true cost of investing is. It is a long time coming for all of us,” he said.

“You have always been paying these fees, but now the fund groups have the good grace to tell you these costs upfront.”

The Janus Henderson UK Absolute Return fund has an OCF of 1.06 per cent, as well as transaction costs of 79 basis points (or 79p for every £100 invested). If platform fees and a performance fee is charged, the total cost of investing jumps to an average of 3.82 per cent annually if purchased via Hargreaves Lansdown, the popular fund distributor.

A BlackRock iShares FTSE UK All Stocks Gilt tracker fund has on OCF of 20bp, but when platform fees and transaction costs are included this jumps to 75bp.

The cost of investing in renowned portfolio manager Neil Woodford’s equity income fund stood at an average of 1.33 per cent annually on Hargreaves, when platform and transaction costs were included. The fund’s OCF is 60bp via Hargreaves.

Similarly, the addition of transaction costs almost doubled the fees investors pay for JPMorgan’s Global Macro Opportunities fund. It has an OCF of 78bp and transaction costs of 66bps, according to Lang Cat analysis.

An easy-to-read document on Vanguard’s website reveals that some of its funds double in price when transaction costs are levied, and quadruple after including Vanguard’s platform fee. But many other asset managers have not been as transparent, publishing either difficult-to-read spreadsheets or only providing the detail of costs to distributors.

Some asset managers, including BlackRock and Legal & General Investment Management, reported negative or zero trading costs, sparking concerns that fund houses were providing inaccurate figures.

BlackRock said it welcomed efforts to improve cost transparency. “We encourage investors to consider both net performance and costs/charges together to evaluate the value for money across different products.”

FTfm also approached companies that distribute funds, including Aegon, Fidelity, Aviva and Axa, to request data on total cost of investing for investors. Most did not respond or said the information was only available to customers that have signed up to use their services. Hargreaves was a notable exception, offering a clear outline of costs for any individual who visits its website.

Nick Blake, principal at Vanguard, said he believed investors will be “surprised” when they see the final cost figure for the first time. “If this disclosure can help clients get more accurate numbers and make it easier for them to make investment decisions, that can only be a good thing,” he said.

In 2016, the Investment Association, the UK trade body for asset managers, released a study that said there was “ zero evidence” of hidden fees and charges in the fund industry.

But Peter Sleep, fund manager at Seven Investment Management, the UK asset manager, said the disclosure of the total cost of investing figures will “put the cat among the pigeons” over the next few months.

“I am pretty confident that there will be some shocking disclosures to come,” he said.

Hidden fees: transaction costs add up
FundOCF%Transaction costs (%)Total cost of ownership (%)
Fundsmith Equity1.050.051.10
Woodford Equity Inc0.750.281.03
BlackRock Cash0.3200.32
Invesco Perpetual Global Target Returns0.880.351.23
Vanguard LS 60% Equity0.220.110.33
Henderson UK Absolute Return1.060.791.85
Lindsell Train UK Equity0.7200.72
JPM Global Macro Opps0.780.661.44
Lindsell Train Global Equity0.750.010.76
Old Mutual Global Equity Absolute Return0.850.401.25
Vanguard LS 40% Equity0.220.120.34
Old Mutual Cirillium Balanced1.6201.62
FP Balanced Portfolio Overlay0.6700.67
Fidelity Moneybuilder Income0.560.180.74
Investec UK Alpha0.830.641.47
Aviva Investors Multi-Strategy Target Income0.850.251.10
Troy Trojan Income1.0201.02
Old Mutual Cirillium Moderate1.6601.66
L&G Global Inflation Linked Bond Index0.270.220.49
Dimensional Global Short Dated Bond Fund0.2900.29
Main unit for each fund has been used. Other units/share classes might have different costs.

Source: The Lang Cat/FE Analytics

* This article has been amended since original publication to correct the figure of the transaction cost for Janus Henderson’s Absolute Return fund (79p for every £100 invested)

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