TER is "misleadingly named", says City veteran
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FundSmith founder Terry Smith has railed against the Total Expense Ratio (TER) and called on all fund running costs to be disclosed.
Terry Smith
Smith says TERs usually include annual management charges and administration costs but do not include the cost of dealing including stamp duty.
He says: “To compound this problem, Financial Services Authority statistics show that on average, UK mutual fund managers turn over their portfolio 80-90% per annum.
“Leaving aside the question of whether any positive performance is gained from this frenetic activity, if these dealing costs are included it would roughly double the charges applied to the fund.” (article continues below)
He adds: “The approach of the fund management industry in disclosing fees is close to that of a well-known discount airlines which quote a ’come on’ price for a ticket which excludes items most of us would regard as essentials like luggage or involves arriving nowhere in the vicinity of your named destination with the extra time and ground transportation costs that involves.
“What is needed is consistent and mandatory disclosure of all costs applied in running a fund to enable investors to make a valid comparison.”
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Readers' comments (2)
Dennis Hall | 16 Feb 2012 5:29 pm
What Terry Smith says is right, but it is hardly news. Financial Planners, cost conscious fund managers and others have been banging on about this for years. Really, that long!
The fact is, it is the same 'City Veterans' that Terry Smith was a part of, that seemingly pulled the wool over the FSA's eyes when they wrote the rule book about disclosure.
AMC, TER, Turnover Rate, how much more information do you need to ask for in order to try and calculate how much funds are actually costing. It's not just opaque, it's like wading through a peat bog.
Cynic that I am, I rather think that Mr Smith is banging the drum to promote his own funds with this 'news'.
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Glen McKeown | 19 Feb 2012 7:59 pm
I get the distinct impression that the finance industry could run a parallel business - honey. There are so many bees in bonnets that it must be highly confusing for consumers.
Transparency is generally a positive factor. But it is not an invariable benefit, as the Government and the Intelligence Services will admit.
In finance it can be a distraction, moving attention away from rather than towards meaningful information. For example, as Terry Smith has a vested interest in the subject it is possible that his intentions are not entirely altruistic.
The fundamental problem with his proposition is that people invest for investment return, and there is little statistical information that demonstrates a strong predictive link between costs and performance.
But let's not pick on bees who are having a bad time at present. An uncritical media will give them a lot of room to spread their wings, so long as they pollinate the circulation.
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