Savers 'are losing £19bn in hidden fees'
Obscure charges make comparison shopping all but impossible when it comes to pensions and other investments
Millions of people with money invested in funds and pensions are being failed by an industry that is charging excessive, unfair and often hidden charges that total billions of pounds, according to the Financial Services Consumer Panel (FSCP).
The body, which advices the Financial Conduct Authority, is unhappy that most pension and investment funds display the annual management charge as the cost of the investment but that can make up as little as a quarter of the actual cost. That is because many of the charges are taken directly from the funds so remain hidden from investors.
The panel is calling for clearer breakdowns of charges so that investors can make more informed decisions about where they put their money.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
"It is completely unacceptable that consumers do now know what firms are charging them to manage money on their behalf and cannot compare them with their rivals," the panel told The Times.
According to research by wealth manager SCM Private, the real cost of hidden charges is up to £19bn a year across pension and investment funds. Charges can make a huge difference to the value of your savings – just a 1 per cent annual management charge adds up to 24 per cent of a pension pot over a working lifetime, according to the Department for Work and Pensions.
What are these hidden charges?
Most fund groups quote the annual management charge (typically around 0.75 per cent) and an ongoing charge that covers costs such as custody and audit fees (pushing the total fee up to 0.85 per cent on average). But, the FSCP state that there are many more charges being levied on most funds.
"In particular, it argues the ongoing charge takes no account of the transaction costs, such as broker's commission and stamp duty, which managers incur when they buy and sell shares in their portfolio," says Mark Atherton in The Times.
Another hidden cost is the 'spread' – the difference between the buying and selling price of a stock. This can typically add between 0.27 per cent and 0.4 per cent to the total fund cost.
What can be done?
The FSCP is calling for a new annual management charge to be introduced that covers everything from transaction costs to the current management fee.
"Fund management firms could be required to quote a single and comprehensive annual charge that included estimates of 'forward costs' such as transaction charges," says Rupert Jones in The Guardian , following an interview with a member of the FSCP.
"All the other costs that are currently deducted directly from the fund would be borne by the firm, thereby enabling consumers to compare different firms' charges, and acting as a 'powerful incentive' to improve efficiency."
Panel member Teresa Fritz said: "If consumers really knew the true cost of investment management, it might drive some to take their money out and put it into savings accounts."
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
Quincy Jones, music icon, is dead at 91
Speed Read The legendary producer is perhaps best known as the architect behind Michael Jackson's 'Thriller'
By Peter Weber, The Week US Published
-
Moldova's pro-West president wins 2nd term
Speed Read Maia Sandu beat Alexandr Stoianoglo, despite suspicions of Russia meddling in the election
By Peter Weber, The Week US Published
-
2024 race ends with swing state barnstorming
Speed Read Kamala Harris and Donald Trump held rallies in battlegrounds over the weekend
By Peter Weber, The Week US Published
-
How to minimize capital gains tax on investments
The Explainer It can take a chunk out of your profits
By Becca Stanek, The Week US Published
-
How to handle financial anxiety ahead of the holiday season
The explainer Between travel, gifts and seasonal sales, it will be tempting to stretch your budget
By Becca Stanek, The Week US Published
-
What are high-deductible health insurance plans, and when do they make sense?
The Explainer Recent years have seen a growth of HDHPs, which offer lower monthly premiums but require customers to pay more out of pocket for care
By Becca Stanek, The Week US Published
-
What to know ahead of the next FAFSA rollout
The Explainer The FAFSA application process is no longer running the way it did before last year's big shakeup
By Becca Stanek, The Week US Published
-
4 risks to know about when using payment apps
The Explainer Payment apps like PayPal, Venmo, Cash App and Zelle are more popular than ever — but are they safe to use?
By Becca Stanek, The Week US Published
-
How to enjoy eating out without breaking your budget
The Explainer Save money by hitting happy hours, splitting the bill and putting a limit on drinks
By Becca Stanek, The Week US Published
-
When does it make sense to refinance your student loans?
The Explainer Refinancing involves moving your existing student loans into one new loan, which can streamline how many different payments you are juggling each month.
By Becca Stanek, The Week US Published
-
How does changing jobs affect your 401(k)?
The Explainer Navigate the switch without negative effects on your retirement savings
By Becca Stanek, The Week US Published