Why you may be overcharged for underperforming actively managed funds

William Turvill
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(FILES) A picture taken 17 April 2007 in...
Some £924bn is estimated to be invested in actively managed funds in the UK (Source: Getty)

Asset managers could be overcharging investors by £6.7bn a year for actively managed funds which underperform benchmark indices, according to a new study.

Some £924bn is invested in actively managed funds in the UK, and 74.7 per cent of them perform worse than their respective benchmark indices, financial adviser Salisbury House Wealth has estimated.

According to the firm’s estimates, an actively managed portfolio costs around 1.48 per cent in fees, as a percentage of the fund’s value. A fund that is passively managed, meanwhile, costs an investor around 0.5 per cent.

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The study has been released at a time when the City watchdog, the Financial Conduct Authority, is planning to shake-up the asset management industry to ensure investors get a better deal.

In a preliminary report, the FCA identified weak price competition, especially among actively managed funds, where high charges are on average “not justified by higher returns”.

Salisbury House Wealth estimates that £690.2bn is stored in underperforming active funds.

“It is dangerously easy to invest money and to then forget about it for several years,” said the firm’s managing director Tim Holmes.

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“But unfortunately this is exactly the kind of situation that leaves people vulnerable to being overcharged by their fund managers – and ultimately to the potential for considerable financial loss.”

He added: “Many people, for example, forget to analyse funds from workplace pension set-ups when moving jobs and to consider whether transferring these or switching funds would be suitable moving forward.

“This means that, a number of jobs down the line, they may find they have several separate pockets of money – all of which are performing poorly.”