MARK Carney has been lauded by homeowners for giving forward projections on interest rates, now set to deliver record low mortgage bills for the forseeable future. Yet after four years of 0.5 per cent interest rates, many will see forward guidance as the final nail in the coffin for cash-based savings.
There is already strong evidence that savers are moving into equities to find better returns. But as many look to buy through investment trusts, mutual funds or exchange-traded funds, it is more critical than ever that the industry is fully transparent on costs, fees, and underlying holdings. Failure to be so is set to create mis-buying, instead of mis-selling, scandals in the future.
The Retail Distribution Review (RDR), introduced this year, was meant to achieve this by making Independent Financial Advisers (IFAs) disclose trail commission and fees. While RDR has provided greater transparency in this regard, it has done nothing to tackle lack of disclosure around the number of hidden fund management charges. It has also not addressed the issue of one Total Cost of Investing, including all levels in the investment chain.
RDR has also started to open up an advice gap, which is seeing IFAs refuse to offer advice to smaller savers (it’s not economically viable). The consequence is that many investors have been driven towards self investment. Yet we still do not have fair and open pricing for investment products. Without this information, how can investors make suitable, informed choices? Our analysis suggests that investors pay £18.5bn each year in hidden costs and fees.
The Investment Management Association recently announced that it is seeking to issue a new code for disclosing costs and fees in “one number in pounds and pence”. But in reality, this is more smoke and mirrors. It will not be one number, but a long list not added up; it’s not in pounds and pence, but per unit; it does not include all the costs, and is to be buried away within an annual statement post purchase, which few people read. The Financial Reporting Council appears to be condoning this proposal. It is equivalent to allowing tobacco companies to design their own health warnings.
Trust in finance remains low. And as the rotation from cash into equities intensifies, there is no alternative to ensuring that a totally transparent system for reporting all funds costs exists. Without this “ticket price”, we will never rebuild consumer confidence. For this reason our True and Fair Campaign has developed a free online fund fee calculator to allow savers to see the full cost of investments in one number, in pounds and pence, and to compare different products before purchase.
Signs of recovery are growing, the FTSE has shown good growth this year (despite recent volatility). Now is the time to make sure hidden costs and fees are eradicated. This isn’t a job that can be left to the industry to administer. Self-regulation has failed, and consumer confidence won’t be restored by allowing the perpetrators to cook up a solution, with a seemingly indefinite timescale to deliver.
Gina Miller is co-founder of SCM Private, and leads The True and Fair Campaign. The calculator is available at www.trueandfaircalculator.com