Monthly Archives: September 2012

27Sep 12

FT Adviser – ‘Wheatley urged to rethink ‘shoot first, ask later’ approach’

“The incoming Financial Conduct Authority has been warned to ensure it aims its gun at the right target after outlining a “shoot first, ask later” regulatory policy…”
Read the full article on the FT Adviser website.

Posted By: True and Fair, 11:46 am

27Sep 12

New Statesman – ‘Separating the Wheatley from the chaff’

“On Wednesday Martin Wheatley, who will head up the FCA (the new incarnation of the FSA), made a stirring speech championing the consumer…”

Read the full article on the New Statesman website.

Posted By: True and Fair, 11:08 am

27Sep 12

FT Adviser – ‘FCA to monitor asset management charges’

“The Financial Conduct Authority will monitor product charges from asset managers as part of efforts to bring down the cost of intermediation, Martin Wheatley has declared…”

Read the full article on the FT Adviser website.

Posted By: True and Fair, 11:07 am

26Sep 12

This Is Money – ‘Are fund charges finally set to fall?’

“The managing director of Britain’s new financial regulator today promised a crackdown on excessive fund charges. Martin Wheatley, managing director of the Financial Services Authority (FSA) which will next year be swept away and replaced the Financial Conduct Authority (FCA), promised a ‘renewed focus’ on how fund managers treat their customers…”

Read the full article on the  This Is Money website.

Posted By: True and Fair, 8:47 am

26Sep 12

City AM – “Wheatley signals an asset manager fee clampdown”

“MARTIN Wheatley, managing director of the Financial Services Authority, yesterday fired a warning shot across the bows of the asset management industry by indicating active management charges will face increased scrutiny when new regulators take power next year…”

Read the full article on the City Am website.

Posted By: True and Fair, 8:34 am

24Sep 12

IMA New and Improved Fund Fee Disclosures contains more than the usual amount of IMA Fudge

IMA New and Improved Fund Fee Disclosures contains more than the usual amount of IMA Fudge


- IMA’s additional recommended practice is intended to promote understanding of the nature of charges and costs, and transparency.


Truth: Very little has changed – the code is voluntary, not starting for six months, and simply repackages existing partial numbers into a new place made up by a host of different numbers which the IMA refuses to add up to ensure consumers’ understanding is enhanced.



- Wherever the annual management charge is given, the ongoing charges figure should be presented with equal prominence.


This is a major step forward by the IMA as it would prevent the shoddy misleading adverts which in any other field would be banned for being misleading in which the IMA members commonly advertise just their annual fees giving investors the illusion this is a fair representation of the total.



- Where the fund is subject to a performance fee, this should be stated and the percentage of the NAV that was charged in the last financial year should be given alongside the ongoing charges figure.


It is strange that the IMA has not followed the True and Fair campaign suggestion of three year smoothing process to give investors a better indication of a normal performance fee.  Furthermore by not having ONE number including such costs, few investors will see it, add it to the other costs and therefore be able to properly compare one fund with another.



- IMA recommends additional disclosures about the portfolio transaction costs necessarily incurred in buying and selling investments for the fund. Three year average figures for broker commissions and transfer taxes (such as stamp duty) should be presented separately as percentages of the NAV. Additional disclosures should be given to explain the significance of these costs and the bid-offer spread.


By not having ONE number including such costs, few investors will see it, add it to the other costs and therefore be able to properly compare one fund with another.


The IMA then deliberately confuses and obfuscates things by encouraging funds to produce part of the actual dealing costs (the taxes and commissions) calculated as a percentage of the fund.  It then separates the other part of dealing costs, the spreads of securities, not by quantifying the actual amount in any year and dividing this by the fund value, but by calculating it as a percentage of a transaction.


Although this is a more in the right direction investor will still need a scientific calculator to calculate the total cost of investing.  Under the new IMA recommendations, the investor needs to work out the spreads supplied, multiply it by the average % of the fund traded and then divide this by the average size of the fund.  They then need to add this to the new dealing cost figure to be supplied, in order to determine the real genuine dealing cost figure.  Once this has been calculated one then needs to add the initial costs, exit costs, performance fee figures to the so called ‘ongoing charges’ figure to provide the actual costs.


For example, one of the UK’s largest Corporate Bond Funds disclosed in its October 2011 Annual Accounts that it had bought £6.2 billion of bonds and sold £5.9 billion of bonds but “that there were no significant transaction costs during the year“.  The new IMA code, even if adopted, would reveal in this case that buying £1,000 of bonds might incur a spread of x%, but it does not reveal this cost as a percentage of buying £1,000 of the fund, it therefore has little value.  One needs to then know how much of the fund is actually turned over each year.  The IMA stopped its members having to produce precisely this information in June this year!



- Existing IMA guidance on stock lending – stock lending income received by the fund should not be used to reduce the ongoing charge figure. Also, where stock lending income is shared with another party in order to subsidise the cost of the service provided by that party, that party’s share of the stock lending income should be included in the calculation of the ongoing charge.


This is bizarrely idiotic – take an example of a fund that say has £1m of costs but normally receives £100,000 net of securities lending income.  The IMA seems to think the right measure of its ongoing cost is still £1m!  Furthermore if say that fund pays an outside company £50,000 to derive £150,000 of such income into the fund, the IMA thinks that the right ongoing charges figure is now £1,050,000 rather than the sensible figure of £900,000 (i.e. £1m + £150k – £50k).



- Comparing portfolio transaction costs for a range of funds may give a false impression of the relative costs of investing in them for the following reasons: Transaction costs do not necessarily reduce returns. The net impact of dealing is the combination of the manager’s investment decisions and the associated costs of investment. Historic transaction costs are not an effective indicator of the future impact on performance


More nonsense from the IMA.  Numerous academic research and SCM’s own research shows that funds with high turnover actually produce the worst performance. In the 5 years to end June 2012 SCM has found that the least active 25% of UK equity funds beat the most active 25% of active funds by 1.2% pa – why? Because the extra costs of sometimes manic trading did not offset any extra returns of the new investments. But this should not be the point; the point is that people are entitled to know how much it’s costing.


Gina Miller stated “We should applaud the IMA’s acknowledgement that fund managers should go beyond minimum standards of disclosure. But today’s suggestions go nowhere near what the True and Fair campaign has been calling for almost a year. Is it really too much to ask a fund manager to tell customers where their money is invested and what they are being charged for? Sadly judging by today’s thinking from the IMA the answer to that question is still yes.”

Posted By: True and Fair, 4:30 pm

24Sep 12

FT Adviser – “War of words flares up as IMA unveils fee plans”

“The spat between the IMA and the founders of City asset manager SCM Private escalated again last week, after the trade body published fee disclosure guidance for member firms.

In a guidance document the IMA told its members to display a transaction cost figure on their websites – the first time the IMA has pushed for these costs to be prominently reprinted, having previously resisted calls for such action…”

Read the full article on the FT Adviser website.

Posted By: True and Fair, 11:46 am

21Sep 12

What Investment – “Funds pressured to display cost transparency”

“The Investment Management Association (IMA) has laid out its new guidance on how funds should publicise and explain their costs…”

Read the full article on the What Investment website.

Posted By: True and Fair, 10:52 am

21Sep 12

The Wealth Net – “FCA’s likely regulatory approach ‘very refreshing’”

UK’s Financial Conduct Authority (FCA) announced that conduct was the “new watchword” for regulators, which is “refreshing”, according to Gina Miller, co-founder of SCM Private and head of the True and Fair Campaign.

“It is refreshing that the new regulator has stated that he intends to make sure markets work well in the interests of consumers, and is determined to “shoot first and ask questions later”.  We have under-covered systematic abuse of the consumer within the fund management industry and have highlighted numerous shoddy practices backed up by extensive research,” Ms Miller said.

Ms Miller believes it is “scandalous” that SCM Private felt there was no other alternative than to start a campaign to lobby for the regulator to force fund managers to reveal exactly how much their products really cost and exactly where they are invested.

“We have received numerous enquiries from other regulators and government bodies for our research, but are yet to have received any interest regarding these important consumer issues from the FSA.”

Ms Miller is adamant that unless the new FCA acts very quickly to address these issues, there is growing evidence that people will increasingly turn their backs on pensions and savings generally, which is a “major embarrassment” for the financial services industry.

“To ensure real and consistent improvements in transparency, standards must be imposed by governing bodies or there will be vast discrepancies in disclosure and consumers will continue to be left in the dark about the real cost of their investments,” she said.

Ms Miller concluded that the new regulator needs to “aim its gun” on those stifling change and acting against the needs of consumers.

“Unless the sleepy fund management industry wakes up to this, it will follow in the footsteps of the UK textiles and coal industries and follow a long and steady demise.”

Posted By: True and Fair, 10:39 am

12Sep 12

Motley Fool – ‘You’re Paying Even More In Fund Charges Than You Think’

“Incredibly, fund fees are even more brutal than my figures suggest, according to the True and Fair Campaign, which wants to clean up the fund management

Read the article on The Motley Fool website. N.B. Free registration is required to read the full article.

Posted By: True and Fair, 4:06 pm