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Weekend reading: Mifid II reveals hidden depths to fund charges

Weekend reading: Mifid II reveals hidden depths to fund charges post image

Investing stories that caught my eye this week.

Where’s your fee-phobic passive investing co-blogger when you need him? That’s what I thought as I read an expose of hidden fees in the Financial Times on Monday.1

In conjunction with the similarly cost conscious Lang Cat consultancy, the FT has totted up the hidden fees on a variety of popular funds, as revealed by the new Mifid II trading regulations.

Mifid II requires funds to go beyond the ongoing charge figure (OCF). They must now also give a total cost, including transaction and trading costs and other charges.

The FT reports:

“…many investors pay almost double the OCF in the UK’s most popular funds once transaction costs are included.

This can go up to four times OCF if platform charges and performance fees are included.”

As you’d expect, some active funds don’t fare well under this particular shaft of sunlight.

For instance the FT highlights the Janus Henderson UK Absolute Return fund, which has an OCF of 1.06%, as well as transaction costs of 0.79%. If platform fees (via Hargreaves Lansdown) and a performance fee is added on, the total annual cost rises to an average of 3.82%.

But tracker funds have also found the receipt to extra charges down the back of their sofa. For example the BlackRock iShares FTSE UK All Stocks Gilt tracker fund has an OCF of 0.2%. With platform fees and transaction costs the cost rises to 0.75%.

Few Monevator readers should be shocked by the platform fee component of the analysis – our broker comparison table has long highlighted that particular burden of investing.

But transaction fees and similar data have been much harder to come by.

As Lang Cat director Mike Barrett says:

“It is grimy that it has taken some EU regulation for asset managers to tell investors what the true cost of investing is…

You have always been paying these fees, but now the fund groups have the good grace to tell you these costs upfront.”

Separately, Andy Agathangelou of lobby group The Transparency Task Force has written to the head of the Investment Association demanding an apology for a previous report from the latter that had claimed hidden fees were the “Loch Ness Monster of investments”.

Further reading:

  • “There’s a strangely bittersweet feeling at seeing these figures finally revealed in black and white.”The Evidence-based Investor
  • Hidden investing costs revealed — but ‘still hard to find’ [Search result]FT
  • Vanguard has (now) produced a commendably clear charge sheet [PDF]Vanguard

From Monevator

Bonds are for pessimists, shares are for optimists – Monevator

From the archive-ator: Cash and bonds are different investments – Monevator

News

Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.2

Disposable income is rising in real terms – ThisIsMoney

Buy-to-let sales billions spur capital gains tax bonanza [Search result]FT

Ghost towers: half of new-build luxury London flats fail to sell – Guardian

Want to sell your luxury London home? Then take £1m off – Guardian

Landmark leasehold case fails to slash extension costs – Guardian

Are bond fund investors heading for a bear market? [Search result]FT

Seven in 10 UK workers are ‘chronically broke’, study finds – Guardian

(Click to enlarge)

Seems the Lambo and/or Rari in the garage is just the icing on the cake – Visual Capitalist

Products and services

Virgin Money now has Best Buy easy access ISA paying 1.21% –ThisIsMoney

Interactive Investor customers unable to trade on new website – Telegraph

Customers urged not to switch supply after Future Energy collapse – Guardian

How one eBay seller makes £36,000 a year trading car parts – Telegraph

Think you can spot scammers? Try this interactive test – Guardian

Why investors can’t get enough of Terry Smith’s Fundsmith – ThisIsMoney

The cheap tracker funds that aim to mimic Warren Buffett – Telegraph

Comment and opinion

Ask the Spud: Should I use dollar-cost averaging? – Canadian Couch Potato

The UK doesn’t look expensive versus its long-term CAPE ratio [Interactive Tool]Barclays

Things to do before you invest if you don’t want to lose everything – Financial Samurai

Morgan Housel: What other industries teach us about investing [Video]YouTube

Howard Marks’ latest memo – Oaktree Capital

Robert Shiller: The US is the world’s priciest stock market… – Project Syndicate

…but momentum indicators suggest the bull run could continue… – The Reformed Broker

…and it’s expensive US stocks people are buying, while shunning value – Bloomberg

Success by exhaustion – Of Dollars and Data

2017 investment lessons for stock pickers [PDF]UK Value Investor

Supermarket giants doomed? No, just history repeating – The Value Perspective

Crypto corner

How and where to buy crypto while avoiding the frauds and scams – ThisIsMoney

Disruptive US trading app Robin Hood is to bring free trading to crypto – CNBC

50 Cent forgot he had a stash of Bitcoin now worth $8m – BBC

Off our beat

IKEA: 22 secrets you didn’t know [Where the loose bit went is not revealed]ThisIsMoney

Some lessons for living from older generations – A Wealth of Common Sense

DIY podcasting isn’t as cheap as you think – Quartz

And finally…

“Investors that panic and follow the herd are unlikely to succeed. It’s a recipe for failure. The world isn’t going to end. This baby isn’t going down, and this ship isn’t coming apart. You must be on board in order to reach your destination.”
– Frank Armstrong, Harriman’s New Book of Investing Rules

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  1. The answer, as old hands know, is: “Finishing up the Monevator book. Allegedly”. Watch this space. []
  2. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

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{ 56 comments… add one }
  • 51 Ahick January 29, 2018, 2:03 pm

    or L&G Multi-index 4 “now cheaper” than VLS with negative transaction cost coming out at total 0.18%??

    http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/l/legal-and-general-multi-index-4-class-i-accumulation/costs

    I have a small pension with Baillie Gifford Managed (no available passive multi-asset option) which seems to have a 0.01% transaction cost – total cost at 0.43%. Seems the gap has narrowed quite a bit between it and VLS…

  • 52 PA January 29, 2018, 4:11 pm

    @Ahick

    – HL (as expected?) do seem to have the best source of costs under a new tab ‘Costs’ from the various platforms I’ve looked at.
    – Figures can be reconciled back to fund provider assuming they provide it (eg Vanguard)

    Not checked ITs and ETFs but assume also accurate.

  • 53 The Rhino January 29, 2018, 4:59 pm

    @ZX – “The only factor that I care about with my trackers is how well they track the index (the tracking error) and how stable that error is (the volatility of the tracking error)”

    I think this sounds right.
    I can see that if you held, say, a FTSE100 tracker it would be feasible to do that.
    But from a pragmatic point of view, say you have a VLS comprising a whole bunch of trackers covering equities/gilts/bonds how would you actually do that analysis? It would get quite tricky quite quickly I think?
    Certainly compared to just looking up that it has an OCF of 0.22%?
    Or is that analysis done for you and presented in the vanguard literature somewhere?

  • 54 Mr Optimistic January 29, 2018, 10:48 pm

    I investigated a Henderson high yield bond IT some time ago on behalf of a trust. Fact sheet said OCF 0.65,% plus performance fee. Highlight page in annual report said something like 1.3% but see note 9. Note 9 said ecxcl performance fee. Total charge was 2.02% and performance fee only went to zero with 3% capital loss. Buyer beware.

  • 55 Ben January 30, 2018, 10:22 am

    Vanguard FTSE U.K. All Share Index Unit Trust

    OCF 0.08%

    Transaction cost 0.15%

    88% cost increase……..

  • 56 Ben January 30, 2018, 2:20 pm

    make that 188%!

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