EDITOR'S LETTERMerryn Somerset Webb
Guess the fund charge
I spoke to a retired partner from one of Britain’s big investment firms a few weeks ago. He told me what the average fund charges there were for investors back when he started work. I was stunned.
I’ve been asking people to guess the number he gave me ever since. No one has got it right. Most have been out by a factor of at least ten.
Have your own guess before you read on. Ready? Here’s the answer: 0.08%. Not 0.80%. But 0.08%. Or as they would say in the industry, eight basis points.
Today, management fees of 1% (12.5 times more) are entirely standard. Total expense ratios of over 1.5% barely raise an eyebrow in the City.
If you ask any of the City’s eyebrow owners about these numbers, they will tell you that times have changed. There are platform fees. There is a huge amount of infrastructure involved (travelling to look at stuff, research stuff, modelling stuff) and, of course, there is regulation.
This is all completely true. And it is probably worth another few basis points…
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