When it comes to hidden charges, the airline industry could teach fund managers a thing or two (and would no doubt charge extra for the second thing, on an exponentially sliding scale based on size, weight and ability to be stowed in an overhead locker).
Take Ryanair, the amusingly self-styled “world’s favourite airline”. These are just some of its extra charges (if you think I’m making them up, visit www.ryanair.com/en/terms-and-conditions): priority boarding fee, £5 (ie, priority over the only three passengers who didn’t pay the surcharge for this); reserved seating fee, £10 (only ensures avoidance of departure gate stampede on selected routes); checked baggage fee for first 15kg bag, £15 (costs £10 more if going on summer holiday and packing fewer clothes); name change fee, £100 (unclear if this covers deed poll, or just name on ticket); oxygen reservation fee, £100 (unclear if this applies to masks that should fall from cabin ceiling in event of emergency); fee for special declaration of valuable baggage, £100 (unclear if declaration is to tip wink to heavy-handed or light-fingered baggage handlers).
It was not surprising, then, that when the publicity-shy Irish airline suggested a £1 charge for using its on-board lavatories, most people thought it was serious. Whipped into a frenzy of indignation by the mid-market tabloids, passengers sought advice from Moneysavingexpert.com – conjuring up an image of the eponymous expert leading by example and squirming cross-legged all the way from Stansted to Bratislava (ie, 100 miles outside Bratislava) just to save a few quid.
It was, allegedly, a PR joke – but so ludicrous have “low-cost” airlines’ surcharges become that stand-up comedians don’t even bother using this material any more.
However, there is one set of hidden charges that were never funny in the first place: “administration fees” of up to £8 when buying a ticket with a debit card.
So, following a “super complaint” from Which? magazine, the Office of Fair Trading (OFT) this week announced that it would seek a change in the law to prohibit surcharging for debit card payments. As Cavendish Elithorn, senior director at the OFT, put it: “People are frustrated about being asked to pay for paying.”
Not even the fund management industry would try to get away with this kind of charging, would it? Well, as a campaigner against hidden investment charges, I was struck by similarities between the airlines’ dubious practices and those of fund managers. Consider these aspects of the OFT complaint:
● Failure to disclose upfront charges in plain language. In its original complaint, Which? wanted airlines “to tell consumers upfront if they have surcharges and how much they are – this needs to be in plain language in their advertising and promotions.” I still want fund managers to declare the total cost of investing upfront – at present they don’t, because the not-exactly-plain-speaking “total expense ratio” isn’t total.
● Charges disproportionate to provider’s actual costs. Which? wanted its super-complaint to result in “fair charges – the costs to the consumer should be the same as the cost to the retailer … this shouldn’t be a hidden way of making money.” It calculated that the cost of processing a debit card payment was 20p, but airlines charge 40 times that amount. I want fund groups to stop charging investors a full
5 per cent if they pay their money directly to the manager – almost all still do this, taking more than £500 just for accepting a year’s investment into an individual savings account (Isa). Assuming fund managers pay no more than airlines for processing debit card payments, their mark up is 2,500 times.
● Disclosure of full costs too late in the process. In its investigation, the OFT found “considerable evidence of companies using ‘drip pricing’ practices – adding payment charges to the total price only after consumers have filled in a number of web pages during their purchase.” I would argue that the fund management industry is worse – disclosing total costs, including sharedealing and stamp duty, only in annual reports that investors receive after parting with their money.
In the airline industry, the OFT estimates that hidden charges cost consumers £300m a year. In the fund management industry, however, investors could be paying “up to £5.8bn a year in hidden charges”, claims Alan Miller of investment firm SCM Private.
My challenge, therefore, to the OFT and Which?, is this: having gone after the easy targets in the budget airline sector, turn your attention to financial services. After all, the OFT claims that companies can “improve the transparency and presentation of other surcharges … quickly and easily.” As passengers booked on the Ryanair departure to Bratislava might ask: “What are we waiting for?”