Watch out for big fund managers raising fees

Last week I wrote a column in which I praised Schroders for jumping on the low-cost fund bandwagon with their new Schroder UK Core Fund – an actively-managed unit trust. The fund is to have a total expense ratio (TER) of only 40 basis points, making it about a third of the price of the average fund.

It probably won’t be all that good in terms of performance – it is benchmarking itself to the FTSE All Share Index – but even if it turns out to be a rubbish fund it will at least be much cheaper than the average rubbish fund.

However, no sooner had I announced my mildly positive feelings towards Schroders, than an email from a financial adviser arrived. He’d had a letter from Schroders about their Asian Total Return Fund. The management fee on this one isn’t falling. No, it’s rising, from 0.75% to 1% a year.

And the reason for this? To “align” the fee with those of the company’s other specialist funds. That doesn’t seem to me to be a particularly good reason to raise the price of something by 33%. It doesn’t to the adviser either.

Companies such as Schroders, he says in his own letter to them, should not be in the business of launching funds with low-ish fees and then ramping them up the second the fund is large enough to make it worthwhile.

He also points to the fact that many firms are now doing the opposite. They are recognising the arrival of a lower fee environment and cutting their percentage fees as their funds grow. Shame the big companies in the market can’t bring themselves to do the same.