Monthly Archives: March 2012

28Mar 12

Financial News – ‘It’s about time Granny coughed up’

‘It’s about time Granny coughed up’ by Ben Wright

26 Mar 2012 Updated at 11:35 GMT

I love my Grandmother, I really do. So I would like to apologise to her and all the other pensioners in the UK for what I am about to say – I’m glad George Osborne, the Chancellor of the Exchequer, clobbered you with fresh taxes; you had it coming.

The worry, however, is that the misplaced furore about an eminently justifiable “Granny tax” in last week’s Budget might distract us from the wider goal: it’s not just my Granny we ought to be going after; the government needs to wallop my Mum too.

And if the UK government does pluck up the courage to take her on, it will have a huge impact on the shape, size and structure of the investment industry – and the fees it charges in particular.

Osborne’s appetite for the fight may, unfortunately, have been lessened by the headlines to which he awoke post-Budget. The Daily Mail went with “Osborne picks the pockets of pensioners”, The Daily Telegraph had “‘Granny tax’ hits 5m pensioners”, and the Daily Mirror put it most succinctly: “Mugged!”

But it’s hard to escape the impression that the negative press was born out of the delivery of the Chancellor’s measures on pensions rather than their substance. He removed the higher tax allowances enjoyed by people aged 65 and over but claimed it was merely a “simplification”.

Even before he sat down, many people had worked out that it was actually a tax increase of around £200 a year for millions of pensioners. The press delighted in the apparent obfuscation – the only surprise in a Budget that had been comprehensively leaked in the preceding weeks – and duly roasted Osborne for it.

For a politician who is often portrayed as a modern-day Talleyrand, it was a low moment. Dressing up the tax increase as a simplification and hitting pensioners may have been “lousy politics” as Lord Tebbit, the former Conservative Party chairman, said. But that doesn’t necessarily mean it was the wrong thing to do.

Justifiable mugging

For rather more sober analysis of the measure we had to wait until the second round of the news cycle. The Institute for Fiscal Studies level-headedly pointed out that it “looks like a relatively modest tax increase” on a portion of society “hitherto well sheltered” from the tax increases, benefit changes and austerity measures shouldered by the rest of the population.

I have yet to find someone who can lay out an adequate justification for why allowances should be based on age rather than means. The Institute for Public Policy Research points out that only a fifth of pensioners are poor.

The removal of age-related allowances – which were introduced at the beginning of the last century when old age almost invariably equated to penury and which add huge complexity to the system – falls hardest on the wealthiest pensioners.

But, while I believe it is important that my Granny pulls her weight during this national austerity drive, I worry that the fuss that the Budget has caused will distract the government from an even more important task: training its sights on my Mother.

She is a baby boomer – born between 1948 and 1965 (I won’t tell you which year precisely; she’d be cross). This is the biggest and richest generation the UK has ever known. Those born at the beginning of the boom will turn 65 next year.

Generation game

As the IFS pointed out, it is these soon-to-be pensioners who will be hardest hit by the measures that Osborne sort-of-not-quite announced last week. That, surely, is as it should be. And it can only be the start.

The Pinch, a book written by David Willetts, the universities minister, has been criticised by some for demonising an older generation. Its subtitle (How the baby boomers took their children’s future – and why they should give it back) doesn’t help.

But, as he writes, generational name-calling gets us nowhere: “It is not that some generations are good and others bad; it is that some are big and others are small.” With size comes power and the baby-boomer generation has used its heft to force the world to meet its financial needs. Successive governments have pandered to its many votes.

And the cumulative effect, as baby boomers start entering the ranks of the retired, has been a steady increase in benefit costs that is close to beggaring the economy. This is not, of course, a uniquely British problem. Every western economy with a high median age faces similar issues; it is the painful throb that underpins the eurozone’s paroxysms.

People across Europe are facing up to the prospect of having to put more in their pension pots, work longer and get less in retirement. This is especially true in southern European countries that rely more on public savings systems and is why pension reforms are such an integral element of any solution to the eurozone debt crisis.

Market volatility, low interest rates and rising life expectancy are also slamming the private sector savings pools in northern Europe. But while the baby boomers may end up with smaller pensions than they had originally anticipated, they will almost certainly still enjoy longer and better-funded retirements than their children. It is right that their tax burden be increased.

Feeling the pinch

The greater the squeeze, however, the more attuned investors will become not only to the returns their managers achieve for them but also the fees that they are charged.

This is why the Financial Services Authority’s announcement that it will take a close look at fund management fees, though not before time, is to be welcomed. As Gina Miller, a co-founder and partner at SCM Private, points out, as long ago as 2000, the FSA found that only half of overall investment fees and costs were disclosed to UK investors.

B&CE Benefit Schemes, in a report for the National Association of Pension Funds, has uncovered more than 30 separate types of fee levied on private pensions in the UK. As well as standard annual management charges, which are expressed as a percentage of assets under management, providers often have a variety of add-ons, including administration fees, entry and exit fees. Some hike management charges for members when they change jobs but leave their pension pot behind.

SCM Private estimates that UK savers are still paying around £18.5bn a year in hidden charges. In January, Steve Webb, the pensions minister, told the industry to introduce more transparent fees and costs. If it does not do so voluntarily, Webb warned, he will consider introducing a cap.

The investment industry often counters accusations that it charges too much with the argument that it is so heavily intermediated. This, it is claimed, erodes margins. That is open to debate. But really the point is moot anyway.

Fund managers are about to collide head-on with a huge demographic and fiscal impetus to reduce fees. My Mum won’t invest in the products of those that don’t.

Posted By: True and Fair, 8:19 am

26Mar 12

This Is Money – ‘FSA announced probe into rising fees charged by investment managers’

An article discussing fee transparency and the True and Fair Campaign, feature on the This Is Money website.

Posted By: True and Fair, 1:13 pm

26Mar 12

What Investment – ‘FSA set to probe fund charges’

An article discussing fee transparency and the True and Fair Campaign, featured on the What Investment website.

Posted By: True and Fair, 11:56 am

23Mar 12

Comment on Pension Budget Announcement

More than four million pensioners over the age of 65 are to have their personal tax allowances frozen next year.  The move, which was announced in the budget means that the amount of money they will be able to earn before becoming liable for income tax will not rise, or move in line with inflation.

The change has been made as part of an effort to simplify an overly complex system of tax allowances.  However, it will affect millions of people who rely on their savings, the same people who, for the last three years, have already seen the income from their savings hit by historically low interest rates.

In this environment it is more important than ever that people can be certain their savings are safe and their investments are working as hard as possible.  But too many people are seeing their returns eroded by hidden fees and charges.  All too often people are not being told the true cost of their investments. It’s time for a cultural shift in how savings and investment companies treat their customers.

The Government has taken steps in this direction by pledging to improve transparency and competitiveness in the ISA market.  It is has highlighted the need for improvement in transfer periods and information exchange.  These should be welcomed.  But they do not go far enough.  There needs to be total transparency on fund fees and management costs to rebuild consumer confidence and increase levels of consumer saving.  It is scandalous that only 19% of consumers know the full fees and charges on their investment and savings products, and 84% agree that fund managers should be required to disclose the full breakdown of fees incurred.

Unless the Government and fund management industry takes notice of the groundswell of support for greater transparency of investment fees, consumers will continue to vote with their feet and either do it themselves or simply stop investing.


Posted By: True and Fair, 5:39 pm

23Mar 12

Bloomberg – ‘Hidden Fund Fees Mean U.K. Investors Pay Double US Rates’

An article discussing the True and Fair campaign and fee transparency, featured on the Bloomberg website.

Posted By: True and Fair, 12:48 pm

22Mar 12

FT Adviser – ‘Kohn adds name to SCM code of conduct’

An article discussing the True and Fair campaign, featured on the FT Adviser website.

Posted By: True and Fair, 1:39 pm

16Mar 12

Post-Roundtable Debate Press Release



  • True and Fair Roundtable sees investment leaders debate need for urgent action on new ‘transparency code’ and a consumer champion to encourage saving and pension investment


  • Industry heavy weights warn that a lack of transparency is undermining consumer confidence and trust in the industry


  • Roundtable comes as research reveals 78% of IFAs believe fund managers should be required to disclose their fees and costs in full, with 63% of consumers agreeing

  • Overwhelming agreement that fund managers should at least match US standards of full quarterly fund holdings disclosure


London, 15 March 2012: Investment industry heavy-weights have today agreed in principle that there needs to be an industry ‘Code of Conduct’ to increase consumer trust by improving transparency and encouraging clearer disclosure of fund fees.


That was the finding of a roundtable discussion involving investment industry leaders which met today to discuss how to boost consumer confidence in investment funds, improve greater transparency on fees and fund management costs.


The event was hosted by the True and Fair Campaign (, and attended by The Investment Management Association, Harriett Baldwin MP, NAPF, Which?, JP Morgan Asset Management, Lipper,  Simmons & Simmons, 7IM and Kohn Cougar and chaired by BBC News correspondent Simon McCoy.


Harriett Baldwin, MP, stated, “In the past, defined benefit schemes have been able to negotiate low fees with large pools of investments.  Now and in the future, it is down to individuals to make the investment choices and so transparency of fees is important in allowing consumers to make informed decisions.”


Richard Saunders, Chief Executive, Investment Management Association said, “Transparency is important for this industry. I congratulate the campaign for getting this debate going. There have been big strides in recent years, but there’s opportunity for further progress to be made.  The industry has a good story to tell and my personal view is that more could be done to tell it.


“But it is important to remember that net performance is the most reliable measure of the returns investors receive from a fund, after all costs and charges are taken into account.  Analysis of net performance shows that trading costs have no overall material impact on investors’ net returns. It is a myth that undisclosed charges are costing investors billions a year.”


Peter Sleep, Senior Portfolio Manager, 7IM, said, “I am constantly surprised by how often I am led astray by promotional material.  Perhaps the industry is not as squeaky clean as it should be.”


The lively debate saw all parties agree that greater transparency should be a foundation for all investment and pension products and that the industry should work together to improve consumer trust in the financial services industry.   One suggestion was for a consumer champion to support the interests of individual savers – though there was no consensus on which organisation this should be.


Charles Scanlan, Former Head of Pensions at the law firm Simmons & Simmons said, “There is general distrust in the pensions industry – we need comparability of investment costs across the board.  I believe there also needs to be collective champions for the individual saver.”


The panellists called for industry consensus on this and a voluntary code to ensure a consistent approach.


Gina Miller, founder SCM Private said, “It’s clear from recent conversations that many fund managers are scared to reveal the full costs and frightened of how this would affect their profit margins.  But the same margin pressure is inevitable if they do nothing as investors will increasingly decide on the DIY option.   Many fund managers fail to recognise that it is in their medium to long term interest to behave ethically and honestly, thereby encouraging consumers to save more.”


“We need to give consumers total transparency on fund fees and management costs to build consumer confidence and increase levels of saving and in turn transform the UK into leaders rather than the laggards when it comes to investment and saving cost transparency.”


Roddy Kohn, principal of Kohn Cougar said, “Clearly in the context of giving consumers more confidence we are failing collectively.  So the reason I think this campaign is important is because it sends a very clear message that we are not resting on our laurels.  I can’t help but feel regulation has unfortunately failed consumers.”


Ed Moisson, Head of Research, Lipper stated, “I continue to be supportive of the True and Fair campaign’s efforts both to raise awareness of the costs of financial products and to make costs related to the activity of the manager more transparent and comparable for retail investors.


“This does not mean that a single cost figure will be necessarily more useful for investors than the current required disclosures (exemplified in the new Key Investor Information Document), but it is a debate that needs to be taken forward and the True and Fair campaign gives an opportunity for the industry to do so.”


Recent research commissioned by True and Fair reveals that 89% of consumers would like fund managers to disclose a full breakdown of investment fees and almost two thirds (63%) say that they would be more likely to invest if there was clearer labelling of products and transparency on costs and fees.


Additional research conducted this month also reveals that 78% of independent financial advisers (IFAs) believe that fund managers should be required to disclose the full breakdown of all fees incurred when investing a client’s money.


SCM Private initiated the True and Fair Campaign in January 2012 calling for 100% transparency on all transaction costs and management fees and full disclosure on where funds are invested.


The roundtable was organised to try and get industry consensus on ways to achieve this goal, interestingly the FSA were invited and although Hector Sands was unavailable, no one else from their huge number of employees was available to attend.


Industry speakers at the roundtable were:


  • Harriett Baldwin – MP (20 year career in finance prior to becoming an MP in May 2010)
  • Jasper Berens – Managing Director, Head of UK Sales, JPMorgan Asset Management
  • Roddy Kohn – Principal of Kohn Cougar, IFA (25 years’ experience in the industry)
  • Alan Miller – Founder, SCM Private
  • Gina Miller – Founder, SCM Private
  • Ed Moisson – Head of International Research, Lipper
  • Richard Saunders – Chief Executive, Investment Management Association
  • Charles Scanlan – Former Head of Pensions at the law firm Simmons & Simmons
  • Joanne Segars – Chief Executive, National Association of Pension Funds
  • Gareth Shaw – Deputy Editor, Which? Money
  • Peter Sleep – Senior Portfolio Manager, 7IM


Gina Miller concluded, “We want to ensure that any system is fair and workable across the industry and we appreciate that this won’t happen overnight.  At the same time, we do believe that changes are important for consumers and we think a sense of urgency is required.  We are therefore aiming to put together a working committee that will meet over the coming months, with the aim of agreeing an approach by October 2012.


“If we can’t build that industry consensus, we will have to consider a wider range of options up to and including measures which may need statutory controls; in the best interest of consumers.”






The True and Fair Code

Company XYZ commits to providing clients with a full breakdown of all fees incurred during the investment of their money, including management fees and all underlying costs or charges.

Company XYZ commits to providing clients with a full online breakdown of all holdings held directly, as well as indirectly (e.g. individual assets held as collateral against securities lent out), together with a full percentage breakdown, online, on at least a quarterly basis.


Posted By: True and Fair, 6:48 pm

16Mar 12

IMA: Defending the Indefensible.

In the latest article by the IMA which they are again defending the indefensible, we thought it would be helpful to write a layman’s guides to their article and version of the truth.

IMA: The myth of excessive fund charges, Money Marketing, 12 March 2012

True and Fair View

- IMA: Defending the Indefensible.  A translation of the recent IMA speak into English.

The IMA said: The fund management industry has been under attack recently over charges. There’s nothing wrong with that – as an industry we should be able to answer any accusations leveled against us. What is wrong, however, is the way in which the campaign against the industry has been built up around a series of myths that have been lapped up by the media.

The fund industry has the answers but the old adage rings true, never let truth get in the way of a good story.

I would like to take this opportunity to separate the facts from the myths:

1. Fund managers conceal the cost of trading.

No, they do not. Trading costs are published in a fund’s annual report and accounts by law. European regulators have carefully considered what should be disclosed as part of fund charges and they are very clear as to why trading costs have to be considered separately. Whether this is enough or whether more could be done is another issue. The point is that they are not hidden.

True and Fair view:  According to the Oxford Dictionary, hidden means kept out of sight; concealed’ or  ‘a hidden object or place is not easy to find’.  Some but not all of the trading costs are revealed in the notes to the annual accounts, these are not normally published on-line, not calculated as a percentage of the fund, and not included within either the headline annual management charge or even the so called Total Expense Ratio. 

It is therefore according to the English language, hidden.

2. Trading costs are too high and managers ’over-trade’ as a consequence.

The IMA said: The first point about this is that a fund manager trades in an attempt to increase the value of the investor’s portfolio. Second, the fund manager receives no financial benefit from trading. More important, any positive benefit from trading goes straight to the investor.

Successful trading improves investment return. For my management fee I expect the fund manager to trade each time he sees an opportunity.

True and Fair view: Of course every fund manager will trade to seek an opportunity.  Sadly, nobody can guarantee a profitable trade.  SCM research actually matches academic research that shows when a manager trades too much, the investors suffer.  A 2004 study, entitled Portfolio Transactions Costs at U.S. Equity Mutual Funds found that ‘fund investors bear substantial portfolio trading costs. Equity funds incur an average annual explicit brokerage commission of 38 basis points and an average annual implicit trading cost of 58 basis points… We suspect that many mutual fund investors are completely unaware of these trading costs and simply assume that the reported expense ratio includes them.’

In fact we can reveal that if you were to invest in the 20% of actively managed funds within the popular IMA UK All Companies sector (i.e. UK equity funds) with the highest rather than lowest recently reported portfolio turnover (found using Morningstar) it would have cost you 3.9% in 2011, 2.3% pa over the last 3 years and 0.9% pa over the last 5 years.    

However, as the IMA knows full well, this misses the basic point – nobody invests in the average fund, they invest in a fund and are entitled to know all the costs of THE fund they invest in.  This is called being honest and transparent. 

3. Trading costs eat into investors’ returns.

The IMA said: No market can be accessed for free so trading costs will always be a reality. Recent IMA research proves that net performance shows the difference between the market return and the investor return is broadly the same as the total expense ratio.

It can be misleading to look at trading costs without understanding the difference they have made to the value of your investment. We will be publishing more on this shortly.

True and Fair view: : The IMA is once again relying on  misleading research – the fact of the matter is that their research actually proved nothing since once again they set out to compare apples with pears.  As it happens using the IMA’s own research over 5 years rather than 10 years would have doubled the gap between actual performance and the index from 0.7% pa to 1.6% pa as the IMA stats ignore many of the badly performing funds that have not lasted the full 10 years before either being closed or merged with another fund.  Over the coming weeks there will be further ‘independent’ research produced by the IMA to once again prove that there are no hidden dealing costs, the world is flat, and the moon is made of cheese.

Does this prove anything? No.  The fact is there are costs; the fact is that most consumers cannot see let alone calculate them, and the fact is until the IMA recognises this it remains in total denial. We suggest the first step for the IMA would be to recognise reality.


4. You are better off avoiding funds.

The IMA said: Not so. Fund investors benefit from pooling their money with each other so it works out a lot cheaper than DIY investing.

If you invested £10,000 directly in all the companies of the FTSE 100 it would cost you about £1,250 to buy the shares from a broker. Funds are likely to charge about £10 for the same trades and offer a much cheaper way of accessing those shares.

There have been a lot of big numbers bandied around, some of which have been calculated in a dubious manner, all of which are being used to paint the industry in a bad light.

As a leading IFA recently commented, the debate is focusing on the wrong thing. Surely, the number that matters to the individual investor is the net performance.

True and Fair view: We have never said to avoid funds – this is the IMA putting words into our mouths; as they do when they suggest we are saying transparency equates to lowest cost.  Funds serve a great purpose in terms of pooling investments efficiently for investors.  What we are saying is that consumers should have the right to know how much something costs BEFORE rather than AFTER they invest.  They can then make an informed decision balancing the underlying return of the index BEFORE costs against the TOTAL costs to determine whether it is worthwhile to invest with a particular investment or savings adviser or not.  In our view not telling consumers how much something cost until they come to sell it is thoroughly dishonest.

We have also said that the industry needs to publish on-line and regularly the FULL holdings because the money belongs to the consumer.  This has been the law in the US since 2004.  The IMA talks about transparency but then does precisely nothing.  If it could see further than the end of its nose, it might actually see it would be in its own self-serving interest (given that its revenues come from fund managers) to help fund managers by encouraging them to act honestly and transparently, which according to our consumer research would lead to 60% saving more.

Why does the IMA waste its time with nonsensical arguments, nonsensical statistics instead of starting to do the right thing for consumers, which might actually be the right thing ultimately for their members?

Why is the IMA so scared about its members telling investors two simple truths – how much it really costs to invest their hard earned money and where it is really invested?




Posted By: True and Fair, 6:46 pm

16Mar 12

MyIntroducer – ‘Urge for investment industry Code of Conduct’

An article discussing the True and Fair Label, featured on the MyIntroducer website.

Posted By: True and Fair, 3:07 pm

16Mar 12

FT Adviser – ‘Managers back voluntary code of conduct on fees’

An article discussing the True and Fair Campaign, featured in the FT Adviser.

Posted By: True and Fair, 11:57 am