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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


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

Like these links? Subscribe to get them every Friday!

  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”. []
{ 56 comments… add one }
  • 1 Learner January 27, 2018, 4:33 am

    I’m a sucker for some disaster porn so `Seven in 10 UK workers are ‘chronically broke’` was a must-read, but the proposed “new class structure” personas are interesting to consider. Not quite sure which is a match personally.. maybe a Striver: well paid and with ok savings, but offset by high education debt (> savings) and no home ownership. Makes it difficult to evaluate benchmarks like the £300k retirement figure discussed here last week.

  • 2 Chris January 27, 2018, 6:42 am

    The high flyer category describes me to a tee although from the label I would not have put myself in that category. Would not be obvious from the outside though as I live in a very modest house I own in a relatively poor area of the country, have no car and take home pay is less than average. But I work from home mostly with a lot of autonomy, am financially independent, am self employed as well as an employee – and save around 70% of my gross pay.

  • 3 arty January 27, 2018, 9:42 am

    On these fee revelations –
    Despite some kind words that you have had in the past for fund manager types, with each passing year and each new revelation of their mendacity, it really is hard not to conclude that they are the most sociopathic, devious (and intelligent) bunch of thieves on the planet, who simply will never behave honestly and in the interest of their customers, unless forced to on pain of prosecution.
    As a mostly passive investor, it really is massively irritating – having made the effort to look into the fees when buying the ETFs and ITs that make up my portfolio, I really can’t be bothered to do it again. And then make all the comparisons again, calculate whether its worth the costs of any switching funds, etc.
    Like so much in life, whether dealing with insurance, banking, utilities, leaseholders, etc, etc, there’s so much effort involved in making sure you’re not being ripped off – just drives me absolutely nuts. Life didn’t used to be like this. Were people just more honest before? Were we just getting ripped off left, right and centre without knowing or has technology just needlessly overcomplicated everything?

  • 4 cat793 January 27, 2018, 10:04 am


    I agree. I wouldn’t ever really expect fund managers (or anyone else for that matter) to act in my best interests though. The mutuals and non profits like Nationwide and Vanguard might be a the least risky in this regard.

    In my view it highlights the problem of moving away from defined benefit schemes for pensions such as pay as you go and final salary. Those schemes provide a clear entitlement and that provides an incentive for the payer (state or employer) to keep costs down. Money purchase schemes or any other form of investment or insurance provide an incentive for the providers to obfuscate the costs as much as possible to make it easy for them to skim off as much as they can for themselves. The compulsory superannuation system over here in Australia is the ultimate boondoggle for the investment industry. It forces people to funnel enormous amounts of money into the hands of fund managers. Yet getting something as basic as the ongoing costs of each specific investment fund out of the pension managers can be criminally difficult.

  • 5 Bill G January 27, 2018, 10:17 am

    Andy Agathangelou was interviewed for the BBC radio 4 In Business programme, broadcast on Thursday 25th January. The programme was about transparency (and lack of it) in the Asset Management business, it is still available on the iPlayer.

  • 6 Simon January 27, 2018, 10:20 am

    @ Arty I do agree. One has the feeling of being “farmed” and it is not a feeling I like. Same thing with this technology stuff. Even my phone seems to stalk me for commercial profit – It follows me around and asks me to “rate” things. “Do you like the petrol station near the village of Massive Thighs”. Well, I neither like nor dislike it; in truth, it is a matter of supreme indifference to me. We cannot go on in this direction.

  • 7 Survivor January 27, 2018, 10:56 am

    @ Arty, you’ve struck a nerve there, I think everyone yearns for the (even) recent past when integrity was worth it for the average person- even just because it was so valued in society culturally. The current Anglo-american way however, seems to be one of sneaky respect for the cunning and ability to profit from a lack of empathy by ‘entrepreneurs’. Even that word has been bastardised from someone who produces something new that has an intrinsic value, to also someone who managed to get something for free from weaker people. As such, inevitably, you will end up with a society resembling a hierarchy of sociopathic ability …..topped by the 1% frothing at the mouth.

    This is probably one of the main reasons why a business like Lidl is doing so well in the UK now, you get what you see, no tricks, no tinsel or other hidden, unpleasant surprises …..you can walk in & drop your guard to just shop for necessities.

    At the tend of the day, this status quo will only change when enough people get over the threshold level of boycotting the offenders, [if possible] whether by voting, or changing commercial service providers. Or apathy will continue to win, while people moan but still bear the increasing parasite load as usual…..

  • 8 Robert January 27, 2018, 11:03 am

    Some of those FT links hit the paywall rather than Google, such as https://www.ft.com/content/26cc6614-0292-11e8-9650-9c0ad2d7c5b5

  • 9 John January 27, 2018, 11:12 am

    Do I sense an interest in expensive London leaseholds? I’m dying to hear what you did about property and the rationale.

  • 10 cat793 January 27, 2018, 11:12 am

    I agree with you 100%. You put it very well. Don’t forget though that all those fund managers et al are not rentiers, spivs and parasitic middlemen. They are “wealth creators” lol.

  • 11 cat793 January 27, 2018, 11:18 am
  • 12 The Rhino January 27, 2018, 11:49 am

    @TI – nice one for following up on the mifid stuff. A few comments on the last post had put it on my radar. They were directed at VLS additional transaction costs. I have a feeling that they may fall in the ‘least worst’ category of offenders though I need to dig into it.

    @TA – keep that nose to the grindstone on the book. Looking forward to it! I notice your comment at TEA didn’t quite make the cut. Bit of a shame?

  • 13 Accidental FIRE January 27, 2018, 12:02 pm

    I have a Janus Henderson Fund in my portfolio and I want to unload it but have been waiting since I’ll have to pay the cap gains taxes. I bought it way back int he day before I understood that index funds were much cheaper. It’s done pretty well against it’s benchmark over the years, but the fee is .62%. I just need to bite the bullet and do it.

  • 14 Hospitaller January 27, 2018, 12:16 pm

    I wonder -do I sense a counter-revolution here? People fed up with being mined by “tech” giants. People fed up with being exploited for not changing providers every year. People fed up with ads and reviews in which they have zero interest. People fed up with other people making money out of them in exchange for not a lot. It makes me wonder how much of the global economy is productive activity and how much is froth, and if there is a lot of froth, what happens when it is seen for what it is.

  • 15 Tyro January 27, 2018, 12:21 pm

    – Indeed, and not to forget the move to call centres and ‘paperless’ billing and so on, all of which merely shift administrative cost (time, attention, effort, storage, risk) from the company to its customer. I often feel like billing them for the work I do in enabling them to sell to me.

  • 16 William III January 27, 2018, 12:38 pm

    ‘Phishing for Phools’ by Akerlof & Schiller is a great read if you’re interested in that counter revolution. Some parts of markets need to be regulated to avoid companies exploiting behavioural flaws of consumers. I just read about McDonnell confronting the Davos crowd on similar lines. Almost makes me like him and his boss.

  • 17 TomB January 27, 2018, 12:54 pm

    I think a lot of people are over-reacting to this. Firstly transactions costs are not fees. The asset manager doesn’t gain and commercial benefit by increasing them (brokers do…but they aren’t making the decisions).

    These costs have always been there, and visible in the performance of the funds. Passive investments have to be ‘active’ to keep tracking the constantly changing benchmarks but make up the losses through tactically trading ahead of changes and stock lending for extra fees (they pocket some of this commission).

    The Henderson UK fund is a long/short strategy and has done a great job of trading UK stocks for clients. UK funds have additional costs because of UK stamp duty. If these fund managers fail to generate the return to compensate for their portfolio turnover – you would see it in their performance figures…. So a fund manager is very incentivised to ensure that every trade he makes adds more value than the cost of the trade. Otherwise he’ll lose clients very quickly.

    The headwind has always been there for active managers, just because the public hasn’t been aware hasn’t made these funds suddenly worse or ‘secretly’ charging their clients.

  • 18 Survivor January 27, 2018, 12:55 pm

    @ cat793, Hospitaller, yes I think you’re right – contemporary understanding of “wealth creators” boils down to knowing the price of everything, but the value of nothing. Like that seminal, recent academic [professional] study on how many occupations/commercial activities are really just bullsh*t jobs, so that much of the ‘wealth created’ is just a measure of churn …..this is how the masses are fooled by GDP figures massaging the truth. Carillion is exceptional only for being on the top of the podium, but is merely a symptom of the disease, an inevitable consequence of a corrupting system. The popularity of outsourcing is down to evasion of responsibility through accountability if things go wrong, not because it’s more efficient – if anyone still believes that archaic lie, name on thing that’s better with train travel today vs state run.

    If I mow my neighbour’s lawn for £10 & he does the same to mine, economic output hasn’t surged, you’re just creatively accounting – this is one key to the ‘productivity puzzle’ in the UK economy that [allegedly] none of the royally paid powers-that-be can figure out. It’s just like kicking up a lot of dust on a construction site doesn’t build stuff any faster within the furiously-busy-appearing cloud ‘created’. A nurse’s is a real job, if they don’t show up, people can die, while if a nail bar closed down, people would probably get healthier without chemically stained nails, ditto for guys with bars & their livers.

    In most institutions, including all those supposedly efficient, private corporations in every sector, I’ve experienced swathes of middle management, who go around ticking boxes on forms that don’t need to exist – all day. That & the home delivery army of pointless consumption [I’ve seen dogwashing vans drive up to people’s homes, the junkfood guys, anything fantastic in plastic by amazon …..to give just a few examples] make it possible to realise maybe 90% of jobs wouldn’t be missed. This is why the UK is a tax haven, we don’t produce enough real things to earn our lifestyle’s today, since losing the monopoly on violence [for the gunboat ‘diplomacy’ trade] & neglecting innovation via the privatisation of state research institutions – where are the Isambard Brunels now?

  • 19 Bob January 27, 2018, 12:59 pm


    Re: Lidl…i’m not so sure. I use them regularly and reckon my shop costs half as much as previously but writing “use by” dates on their fresh produce in tiny writing using week numbers rather than dates is surely indicative of a desire to deceive consumers albeit to a small degree.

  • 20 xxd09 January 27, 2018, 1:10 pm

    Hi All
    Another Brexit/Trumpian moment?
    We seem to getting these more and more-in increasing amounts
    Stables being cleaned and all that
    On this forum people have some idea what’s going on in finance-imagine what it is like out there for the less informed that can’t quite put a finger on it all but obviously sense they are being screwed and react with the only weapon they have-a blunt instrument in the shape of a “X” in the ballot box!

  • 21 Survivor January 27, 2018, 1:21 pm

    @ Bob – I have no commercial or other involvement with them, so can’t say I know their intentions, but something like that wouldn’t affect me anyway because I don’t pay any attention to that sort of thing. The existing regulations on products sold here are so weak that there are regularly respectable programs on TV lampooning them – backed by real scientific tests carried out by independent labs. So I just don’t believe the printed info on the packaging, I go by common sense instead – my personal belief being you should take full responsibility for your actions whenever possible, as such even if the labeling where honest, I don’t need the infantilising influence.

    As an aside, I was fascinated from an entrepreneurial viewpoint by the concept of serious discount retail arriving in the UK – to see if this would work given the cultural mindset of having been groomed to expect shopping to be ‘an experience’ vs just another necessity. Having spent time in east & southern Africa, it’s hard as a business-person to avoid noticing that a tiny minority [people originally from the Indian subcontinent] came to so totally dominate trade against serious initial resistance. Their Lidl-style, no-frills pile it high on pallets, limited choice/no gimmicks, take it or leave it model you’d see appealing to Germans due to their respect for efficiency, but I reckon only took off in the UK because austerity somewhat enforced frugality.

  • 22 Nicholas Stone January 27, 2018, 1:22 pm

    Damn that pesky European Union, forcing expensive funds to reveal their real costs! Thank God for Brexit!

  • 23 The Investor January 27, 2018, 1:50 pm

    @TomB — I have a lot of sympathy for your view, which is reflected in my prior post on the subject (in the bullets above). Hence I tried to write this update as reportage more than opinion (my co-blogger would have been far more vociferous! 🙂 )

    I don’t personally particularly see why a cost of doing business for a fund like trading shares *should* be broken out. I don’t expect to see a secondary costing on a loaf of bread telling me how much it cost Tesco to deliver it to me? If somehow they were marketing returns *before* transaction costs I’d be outraged, but everyday retail funds aren’t doing this as far as I’m aware.

    I know from experience this is a minority view around here though. 🙂

  • 24 Survivor January 27, 2018, 2:27 pm

    @ xxd09, Nicholas Stone, the US still rules the world, as Germany does Europe, whether we like it or not & I wonder if there is a common strength enabling that, which not many people realise. Being federations by definition, with some of the most genuine decentralised power to regions, gives a richness of flexibility other states can only dream of. Practically, this means that if you are disenfranchised by the majoritanean effect of your neighbours’ vote – you can relatively easily move to a more agreeable state with less disruption to your life than another country.

    So people can comfortably live amongst others like themselves without the friction entailed by the duality system of half the population being subjected to a life they hate for years at a time when ‘your’ party is out of power. This should result in less internal conflict/resentment for nation states than happens with the north-south divide in Italy & the UK for example. Theoretically, serious devolution of power means less chance of the rise of populist leaders, because you wouldn’t have half the country angry at any one time with a lifestyle they didn’t want forced on them.

  • 25 Tom January 27, 2018, 2:58 pm

    The “effective germans” myth is a pet peeve of mine. I’ve been to Germany, nothing effective about it. It feels more akin to travelling backwards to a time of guild trading and bartering goods for goods.

    This opinion was brought to you from a scandinavian country.

  • 26 Survivor January 27, 2018, 3:09 pm

    @ Tom, Ok, so please explain more, including about the Scandinavian system, I haven’t lived or worked in Germany, only visited a lot & it seems neoliberalism is also eating away at the still widespread impression of more social justice in the Scandinavian way of life…..

  • 27 Too many Toms January 27, 2018, 3:29 pm

    The ‘true expenses’ thing is a tricky one, particularly as you have to include your ordinary punter/investor as well as geeks like us.

    Personally the mainstream(ish) fund houses I like are Fundsmith and Lindsell Train. Terry Smith has long liked to show their total costs, with reassuringly low trading costs, and Lindsell Train, though it doesn’t trumpet costs in the same way, has a similar investment strategy.
    This strategy has worked pretty well for them both to date (though obviously past returns are no guide – except now with KIDS they are etc. etc). However can we say that the low overall costs has been why they’ve outperformed?

    I would slightly sit on the fence here, but I’d say that it certainly makes it easier to outperform, for reasons often espoused by one J Bogle.

    I note also that both fund houses are mostly owned by the fund managers, and that the managers have substantial investments in their own funds. Again, I can’t say for sure that these are reasons for their outperformance, but I think they help, and they are certainly factors I look for in any fund I invest in.

  • 28 Too many Toms January 27, 2018, 3:36 pm

    Sorry, to add to this, I agree to an extent with TomB about the Henderson UK Absolute Return fund. I think that for ‘Alternative’ funds like this, you are paying for something different than a straight equity fund, and if the fund delivers what it promises, and that’s what you want, then you have to accept the overall fees may be higher.
    My issue with these funds like the Henderson is that it still feels cheeky to charge so much for what are arguably bond-like returns.

  • 29 The Investor January 27, 2018, 4:00 pm

    Yes, don’t get me wrong, I obviously still think the average person — including nearly anyone reading Monevator — should be mostly/entirely in trackers and has no business or need to evaluate or invest in active funds except for fun or interest, certainly not in the accumulation phase. (As we’ve debated in the past I do think there’s more of a case — but certainly not a requirement — for active income in drawdown).

    If you want to go active for some reason though, fair enough, you’ll probably get slightly worse returns but there’s a (small) chance that maybe you’ll do better. Either way provided you save enough and choose your active funds with some sort of credible process, you will still get where you want in the end. Active funds just sit better with some people. That’s their personal decision.

    At that point, once you’ve decided to buy into the fund (/skills / process) of an active stock picker, does it really make sense to then demand to know in detail where the costs of them doing their stock picking are apportioned?

    Surely all you care about is performance? I suppose it doesn’t hurt to know say the transaction costs or the costs of research, but I’m not convinced the knowledge gets you very far — and I definitely struggle to be outraged. You’re paying for returns, not paying for how a fund manager spends his or her day.

    And the rule that low costs indicate a higher chance of relatively good returns is true, but this is skewed heavily by the superior performance of tracker funds.

    Our readers are a smart bunch though so perhaps I have a blind spot here, who knows? 🙂 But if anything I think these hidden costs are more of an issue for tracker funds, since they really should be doing exactly what you can read on a tin. That’s the point of tracker funds.

    Even there though, @TA has long advocated looking at tracking difference to evaluate performance, and that will capture these hidden costs.

  • 30 Steve January 27, 2018, 5:04 pm

    @ The Investor

    I have considerably more in active funds than in trackers. I have a lot of equity income exposure in mainstream markets; I invest in that way because I feel there is likely to be more underlying solidity to an investment if is throwing off free cash flow and I am more comfortable with a tried and tested hand running the stockpicking. To spice things up a bit, I also have decent chunks of emerging markets and smaller company exposure, neither of which I want run via trackers. All of the funds I have show track records of outperforming their respective indices. As you say, I am not overly interested in expense levels providing they deliver the goods.

  • 31 TomB January 27, 2018, 5:23 pm

    You’re not really paying those high fees for just for bond like returns. You’re paying for the promise (although not guaranteed) that the fund will deliver those returns even in a scenario that bonds and equities suffer significant loses. In theory they should have a equity beta of close to zero.

    It’s easy to forget after a 9 year bull market (and 390 odd days since the S&P had a drawdown >5%) that markets can actually go down as well as up.

    I like Lindsell Train, although I believe we’re approaching the end of the dominance of their defensive growth style investing. It will be interesting to see if they adapt (I suspect they won’t). Terry Smith I actively dislike, he has basically copied the Lindsell Train approach, is a bit slicker with marketing and getting quoted in the papers – and then moved to Mauritius to avoid paying taxes and talking to pesky clients regularly.

    Most fund high-profile managers have significant amount of compensation deferred into their own funds anyway, and business owners have the conflict of interest of raising assets being more profitable for them. I prefer managers that work for the intellectual thrill of beating the market.

  • 32 The Investor January 27, 2018, 5:32 pm

    You’re not really paying those high fees for just for bond like returns. You’re paying for the promise (although not guaranteed) that the fund will deliver those returns even in a scenario that bonds and equities suffer significant loses. In theory they should have a equity beta of close to zero.

    Indeed. Probably worth remembering that last time the market truly crashed (2008) the absolute return class in general failed to deliver those absolute returns, though they did beat the stock market.

    But their returns were on average smashed by government bonds.

    The curious can read more in an article I wrote back in 2009:


  • 33 Tom January 27, 2018, 5:47 pm

    Regarding the neoliberalism eating away at scandinavian social justice (perhaps you mean welfare?) – that may very well be true. I’m not certain that our system of organizing society is better than any other country. I will say this though – you go to Germany and suddenly cashiers at Burger King scratches their head at a credit card (what is this strange piece of plastic??). The taxi driver pulls out this contraption to make a physical paper copy of your card (made my jaw drop). Their public transit system was fractured, old and incomprehensible. Paying for it was another little nightmare of rushing between different machines that arbitrarily accepted or didn’t accept your cards. I will bring chickens for bartering next time.

  • 34 arty January 27, 2018, 5:50 pm

    The point is that it is harder to compare ETFs if we don’t know what the expenses are. And what we’re told is the fees turns out not to be the fees. Yes, we can compare tracking error and so on, but it isn’t unreasonable for your average investor to expect to be able to see a simple figure showing what is in fact the total expenses. All they need to do is tell us transparently.

  • 35 The Investor January 27, 2018, 6:57 pm

    I missed this one in the links today:

    Teacher: I’m 42, paid off my mortgage and I only work two days a week

    I’m 42 years old and mortgage-free. I’ve also managed to downshift so that I now work only two days a week full-time. It helps, I suppose, that I’m single and don’t have kids. I’ve always been an obsessive money saver but not in a way that’s really tight. I have a nice car and take one or two foreign holidays a year. For me it has always been about keeping my expenses down. The downshift was the result of my low outgoings; I could only afford to do it because I’ve always been careful with money


    Good for you Rebecca!

  • 36 Mary January 27, 2018, 7:18 pm

    Like the transparency from Vanguard in an easy to understand document showing its funds, struggling to find others making the legally required information as easily available!

  • 37 John B January 27, 2018, 8:24 pm

    I think we need to wait until all players reveal their MFID II hands before we can point the finger. In many ways its the passive funds that need to be honest about fees, as when they say they track an index, they mean trail it by 0.25% a year. For an active fund with an invented strategy, all they need to quote is the growth in value, how they do it can be a black box, and then be obliged to mention the performance of the nearest relevant index, and how they normally trail it by 1% a year

    I’m less concerned about fund fees, where they are doing real work handing all that paperwork and transactions, and more so about the often higher platform fees, when they are just maintaining a website and database with 3-4 entries per investor. £50 pa + £10/trade should be plenty for that, not 0.4% of what could be large sums.

  • 38 Too Many Toms January 27, 2018, 8:55 pm

    I take your point about Terry Smith’s move to Mauritius, but I did enjoy his ‘owner’s manual’ and annual letters, and think they are good at calling out a lot of the ridiculous things the fund industry does.
    I think Lindsell Train are deeper thinkers than their current portfolios would suggest, and their research documents have been very inspiring.
    Back when they started, they held a lot of bonds (pretty good call in 2001) as they correctly saw the bond bull market continuing for longer than people expected.
    These were two higher-profile examples though. To take two lower-profile ones, (both mentioned by TI), Capital Gearing Trust and Rights & Issues have pretty low fees too, and managers with significant skin in the game.

  • 39 The Investor January 27, 2018, 9:32 pm

    @John B — I think the cost in platforms is customer support and acquisition, not in running a database. When I last saw a deep report into the sector, the analysis found only one profitable platform (HL) from memory. It is super profitable, to your point I suppose, but the others are clearly not minting money, which is why I think we’ve seen so much consolidation and also skimpy/disappointing service over recent years.

    That said, I’d concede it’s hard to gauge how much is them spending against each other in an asset gathering arms race versus actually serving customers. 😐

  • 40 Lloyd January 27, 2018, 10:12 pm

    @ all
    Please don’t be too harsh on the active fund managers since I need other people to carry on paying their high fees so that they can set the stock prices that allow my low cost passive funds to work!

  • 41 arty January 28, 2018, 9:58 am

    This gets coverage in the telegraph today:
    One interesting line showing the kind of nonsense that managers are getting up to when calculating the figures:
    “In brief, the negative fees occur because of share price movements between when a fund manager decides to sell a stock and the actual sale.”

    So if I decide today to sell a share with a £25 fee and a 0.5% spread, but don’t get around to it for a week during which time the price rises a few percent, I’ll consider my transaction costs to be negative. Great – I don’t need to think about transaction costs when comparing platforms…

    Sorry, these guys are congenitally devious. It would be easy to agree a common, easily comparable method that they could all use. But they won’t, until they’re forced to.

  • 42 PA January 28, 2018, 1:28 pm

    The whole Mifid II costs issue is as clear as mud – hopefully will be clearer in time but suspect it will need enforcement.
    Some providers have clear figures on their websites eg Vanguard and Woodford whilst others have no information (or very well hidden)
    Inconsistent calculations provided by 3rd party companies or on platforms.
    Who to trust or not to trust?
    Good example is Woodford Equity Income fund – from their website shows class C as having OCF 0.75% plus additional costs (broken out) giving total costs 0.96%.
    LangCat provided figures (quoted in FT link) states 0.75% OCF but add transaction costs totals 1.03%
    Who I rely on? Better than those sites who only use KID to show OCF of 0.75%

    I don’t have the time to check every provider website – just a single trusted source of accurate information!!

  • 43 zxspectrum48k January 28, 2018, 2:58 pm

    I don’t really understand the focus on costs with tracker funds. 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.e to pick trackers with the least negative information ratios (ratio of tracking error to volatility). I don’t care especially about the composition of that tracking error. A tracker fund can easily keep costs down by using a less robust replication strategy (this may reduce transactional costs) but if that generates a much larger tracking error then this would be a false economy.

  • 44 dearieme January 28, 2018, 5:38 pm

    I take it that funds/OEICS/unit trusts need to trade daily, buying or selling according to the inflows and outflows from the fund. I also take it that investment trusts/investment companies don’t need to. Does that establish a material advantage for the latter over the former?

  • 45 PA January 28, 2018, 7:01 pm

    @dearieme – I thought that may be true but the more one investigates the new charges regime I’m not so sure – I think ITs or at least some are now using different calculations.

    Example :
    City of London (CTY) which I thought was a good low cost IT – indeed shown on The AIC site as 0.42% Ongoing Charge
    Now I go to Janus Henderson website – select the KID for CTY and it shows :
    Ongoing costs : 0.03% (transaction costs) + 0.85% (other ongoing costs) = 0.88%

    That’s one hell of a difference!

    Is it up to each company? What can we rely on?
    Your presumption seemed true but is it?

  • 46 John B January 28, 2018, 7:13 pm

    Trackers will aim to trade infrequently, either by having a synthetic match to the index with fewer members, or by buffering. Vanguard can buffer across their range of funds, their size meaning they don’t need to go to the market so often.

    All fund breakdowns seem to have a few % in cash, none try to match inflows and outflows exactly.

  • 47 Neil Richardson January 28, 2018, 8:47 pm

    I take Tom’s point about the lack of any incentive behind transaction charges however the only thing we have to differentiate two trackers doing exactly the same thing is cost and it’s OCF which is used to qualify funds for the monevator low cost list. Inclusion of transaction charges potentially turns this list upside down. E.G.
    HSBC FTSE All-World Index Fund C (GB00BMJJJG09) OCF .25 and transaction costs of .23 Total .48 (source: https://investments.hsbc.co.uk/costs-and-charges)
    Vanguard FTSE All-World UCITS ETF – ETF Shares (VWRL) OCF .25 Transaction costs .01Total .26 (source: https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges-2018.pdf)
    Vanguard themselves acknowledge that mifid 2 allows measurement of transaction costs indifferent ways making comparison suspect but what are we now meant to go on?

  • 48 david m January 28, 2018, 10:33 pm

    The City of London IT (CTY) costs of 0.85% include “the costs of borrowing money to invest but not any income or capital benefits of doing so”. This is the cost of gearing which should improve returns in a rising market.
    Share price performance of CTY has beaten the FTSE-AS over 3, 5 and 10 years to 30 June 2017 according to their annual report (page 7).
    For investment trusts I assess costs by looking at the last annual report to find the fees and expenses in the income statement and comparing them to the shareholders funds in the statement of financial position (pages 39 and 41). Fees and expenses were £5.6m. Finance costs were also £5.6m. The average of the opening and closing shareholders funds was £1,336.25m.

  • 49 Tom January 28, 2018, 10:59 pm

    What are the hidden, until MFID2, charges on your funds/etfs?

    1) Vanguard (UK): https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges-2018.pdf

    2) L&G: http://www.lgim.com/files/_document-library/adviser/mifid-ii-target-market-information.xlsx

    I’m sure there are others..

    Aviva, unhelpfully, have ducked exposure for their pension designated funds:

    eg Q16 on P3: https://www.aviva.co.uk/adviser/product-literature/files/gn/gn20822.pdf

    and obscured their isa (‘ex-ante’, ‘ex-post’ etc) costs. Grrr.

  • 50 Ahick January 29, 2018, 12:08 am

    I’m not a HL user, but am I correct that these transactions costs are broken out on their costs tab for each fund?

    e.g. http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/v/vanguard-lifestrategy-80-equity-accumulation/costs

    Total cost 0.77% (-0.45=0.32-0.22=0.1% transaction cost)

  • 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%??


    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


    – 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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