Lloyds admits returning money to overcharged fund investors
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Lloyds Banking Group has repaid investors it overcharged when using its “low risk” actively managed funds.
The British banking group said it had returned money to investors in 2016 after reducing the fees on some of its actively managed funds that targeted a modest level of outperformance but had been as expensive as those aiming for a higher return.
“In 2016 . . . we reduced our charges retrospectively on some funds as a result of our own review to better reflect market charging levels for equivalent products, refunded the difference to impacted customers and informed them of the fact,” it said.
Lloyds, which offers investors funds through its Scottish Widows and Halifax units, declined to state which funds were affected or how much had been repaid.
But it rejected the suggestion the funds were so-called closet trackers — products that purport to be actively managed but in reality hug a benchmark.
The disclosure of the refund, first reported by Financial News, an industry title, comes amid increasing regulatory scrutiny as to whether the way funds are marketed to clients matches how they are run by fund managers and if they are charging unjustifiably high fees.
Last year the Financial Conduct Authority published a report stating around £109bn of investor money was sitting in expensive active funds “that closely mirror the market”, which could potentially be closet trackers.
Lloyds said its actions in 2016 were unrelated to the FCA’s study and were the result of its own review.
This month it emerged that fund houses have paid investors £34m in compensation after the UK’s financial regulator reviewed 84 potential closet tracker funds.
“We expect fund managers to take their duty to their consumers seriously. They should manage their funds the way consumers expect them to and tell consumers what they are doing,” Megan Butler, director of supervision at the FCA, said in a comment published by The Telegraph.
Ms Butler said that for 64 funds, the regulator had asked managers to make it clearer to consumers that the funds were “constrained” in some form, though she stopped short of explicitly naming them as closet trackers.
She added that “an enforcement investigation” is being conducted against one company.
In November the European markets watchdog indicated it was increasing its scrutiny of closet tracking.
The European Securities and Markets Authority, which has been looking at the issue since 2014 following complaints by several investor rights groups, is collecting evidence from national regulators across the bloc.
Between 5 and 15 per cent of retail equity funds across Europe “could potentially be closet indexers” the body said in a study published in 2016.
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