Fund fees: a step in the right direction

The campaign for increased transparency on fund fees might finally be getting somewhere. Sarah Moore explains.

The campaign for increased transparency on fund fees might finally be getting somewhere. Just five months after ousting its head for pushing for exactly this, the fund managers' trade body, the Investment Association (IA), has begun talks with the industry regulator, the Financial Conduct Authority (FCA), on better disclosure of charges and transaction costs. The IA says it will work with the regulator to "ensure customers get a consistent and meaningful set of information" about the costs of investing, says Josephine Cumbo in the Financial Times.

At the moment, it can be pretty hard to tell exactly where your money is going when you invest in funds. Funds typically disclose fees in the form of an "ongoing charge figure" (OCF), but this doesn't usually take account of performance fees, or certain administrative expenses, such as transaction costs (the fees incurred when trading). These fees might instead be covered by money taken out of the fund's capital or income (your money, at the end of the day), which leaves you unable to see exactly how much your fund manager's habit of day trading is costing you.

This lack of a comprehensive, straightforward fee structure makes it very hard to compare funds in terms of value for money. The IA expects to launch a consultation on a draft code for pension fund charges towards the end of the year, says director of policy Jonathan Lipkin. "We can see a way to build a common template," says Lipkin, "that will provide data tailored in a way that is suitable to both retail and institutional investors."

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Coincidentally, this announcement from the IA comes a week before the publication of research into pension-scheme costs, carried out by consumer body the Financial Services Consumer Panel (FSCP). The study concluded "there is readily available data on charges which could shed more light on pension scheme costs" and "there was little justification for fund managers in not handing over charge information".

In other promising news, Legal & General Investment Management has already taken a significant step towards increased fee transparency by unbundling the price it pays for broker research. Research commission is paid out of the fund itself, meaning that, again, you're not aware of what you're handing over. These charges are now included in the firm's "fixed fund management fee" (FMF), which sets out the extra costs associated with running a fund, says Dylan Lobo for CityWire.

So while on the surface the FMF will rise (by about 0.10% to 0.15%), there won't actually be an increase in the amount you pay. These are all steps in the right direction, but there is still a way to go for the industry as a whole before we will be fully satisfied that we know exactly where our money is going.In the meantime, find the most transparent fee structures you can.

Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.