How to reduce your fund management fees

There are many low-cost alternatives to expensive funds. So if you're not happy with the level of fees you're paying, take your business elsewhere. Ruth Jackson explains how to get the best value.

Fund managers have been quietly pushing up their fees ahead of an overhaul of investment charges in 2013. As a result of the Retail Distribution Review (RDR), from 2013 fund managers will have to split out the cost of advice from the cost of investment funds to make the industry's charges more transparent for investors. In 2000, the average annual management charge for active equity funds was 1.36%, says data firm Lipper in The Sunday Times. By 2009 it had risen to 1.48%, but last year alone it rose to 1.49%. "An annual charge of this size would erode almost 15% from an investor's portfolio after ten years," US passive fund provider Vanguard tells The Sunday Times.

The issue of fees is an emotive one. Fund managers deny that they are profiteering from investors, while many others see the complexity and steadily increasing nature of fees as scandalous. "Fund expenses have gone up from 1.5% to 1.7% over the past decade. The number of funds is the same and assets under management have doubled. So you have the same number of people running the same number of funds but with twice as much money in, yet the fees have gone up. That's bonkers, isn't it? With economies of scale you would expect fees to fall," says David Norman of TCF Investments in The Daily Telegraph.

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Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.