Think tank study calls for change in fund management industry
A study by think tank the Centre for Policy Studies has highlighted issues in the fund management industry, making a number of recommendations to be adopted.
The study, authored by Michael Johnson, claimed there were a number of issues over transparency.
He argued that funds’ total expense ratio (TER) was “misleading and inadequate” as it failed to include trading costs, such as transaction costs, commission, stamp duty and initial & exit charges.
Johnson claimed fund managers should provide an industry-standardised Total Cost of Investment (TCI), which included “all up-front transaction costs”, which he says should be included “in the woefully inadequate disclosure tables published by the Investment Management Association (IMA)”.
In the study, Johnson also argued that the IMA should not be involved in the categorisation of funds, claiming that as a trade body “it lacks a common purpose with consumers”.
He said distributors, including independent financial advisers, had used the IMA sector categories “to maximum effect” such as the former Cautious Managed sector, which he argued implied low risk, and had made the trade body “unwittingly complicit” in the Arch Cru scandal.
He said the IMA should cease labelling funds and be replaced by a body representing consumer interests and independent of the industry, appointed by the Department for Works & Pensions, to decide labels, define target audiences, who should do the work and who should pay for it.
Johnson also called for the Absolute Return and Protected sector names to be scrapped.
Among his recommendations, Johnson claimed fund managers should aim to return at least 65% of their target excess return with no fees charged on funds underperforming benchmarks other than “small access fee” to cover administration and safe custody.
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