Neil Woodford’s eponymous asset management business put fund fees back in the spotlight recently after opting to reveal all the additional costs associated with the group’s flagship income fund.
Nearly all fund houses use research from external analysts and other third parties to help them run portfolios.
These costs are bundled into the annual charge investors pay fund managers, but last week the European Commission, acting on the advice of the European Securities and Markets Authority (ESMA) took aim at this practice. It put forward draft proposals that, if passed, will see such fees split out and funded either by asset managers themselves or through a separate research charge.
Nucleus’ CEO David Ferguson says Woodford’s move, and the introduction of a rule change by regulators, cannot come fast enough.
“The decision to scrap research costs is welcome but it is also overdue. For too long the funds industry has blindly passed on manufacturing costs to customers on a no questions asked basis.
“We can only hope that more fund groups do now follow suit and better disclose costs, and this will allow the price-herding we see now to come to an end and allow the industry to have franker and better-informed conversations about price and value.”
Darius McDermott, managing director of Chelsea Financial Services, says the move to reduce costs for investors is very welcome, and showed how the industry is taking steps to modernise pricing.
“Woodford Investment Management was always going to be a modern fund management company. Since launch they have offered full transparency on the holdings in the fund so this is no surprise.
“They have raised enough money to be able to cover the research costs and this is to be applauded.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, added that the move was a challenge to other fund groups.
Speaking to the Telegraph, he reportedly said: “The disclosure of transactional costs throws down the gauntlet to other fund managers to open themselves up to similar levels of scrutiny.”
Whether this actually materialises remains to be seen but the move has, in Ferguson’s view, cleared up one argument about customer confusion.
“For too long fund groups have hid behind the argument that they don’t know how much research and trading costs are going to be so they can’t publish them,” he says.
“If there is such a risk of them changing materially then that is all the more reason for fund groups to absorb such costs, and the risk of it changing year-on-year.”