How The Fund Management Industry Hides Costs

How The Fund Management Industry Hides Costs
Papua New Guinea by Julian Cohen. Why?

Although the fund management industry concentrates our attention on performance, watch this short video to see the shocking truth as to why successful investors always focus on costs

Discover How The Fund Management Industry Hides Costs At Your Expense

Fund Management Industry Profits Continue To Soar

Thanks to the ravaging effect of compound interest, over the years, costs can decimate your SIPP value by tens of thousands of pounds.  Yet most investors have no idea what they’re really paying in fund management charges and other costs, as you can see from this enlightening video.

Smoke And Mirrors On Fund Management Charges

In an article entitled Smoke and mirrors: How pensions will suffer due to hidden fund charges, Money Marketing highlights a comment from the European Commission, saying: "At the moment we are only obliged to ask fund managers for transaction costs, but if they refuse to give them we can’t do anything about it".  Read the full article on fund management.

One of the most popular SIPPs in the UK includes 73 lines on its different fund management charges, as well as ‘complicated’ qualifying notes.  On this, Nick Hungerford of CEO of Nutmeg said:

These include charges that are set fees, percentage of Assets Under Management fees and percentage of transaction fees, some including VAT and others not including VAT. Furthermore there are complicated criteria to qualify for this or that and a note that chosen investments may have their own initial and annual charges and bid offer spread.  This is completely bewildering to the average investor and requires a detailed analysis by the most committed of analysts.

The True and Fair Campaign, which lobbies for fairer and more transparent charges, accuses the fund management industry of using smoke-and-mirror tactics.  Campaign founder Gina Miller says:

The fund management industry is supposed to publish something called the on-going charge. That was under an EU directive that came in in 2012. Most companies still only publish the annual management charge. Outside of the annual management charge there can be a myriad of other charges, between 11 and 13 layers.

Half Of Fund Management Best Buy Lists Underperform

Damning research by consumer finance website Boring Money has unearthed the fact that half of funds included on buy lists on direct-to-consumer platforms have underperformed compared to their sector average over five years.

Boring Money founder Holly Mackay says:

I’m a proponent of active management but when you look at this, it does make you wonder whether people would be better off going for passive funds, paying less and sticking with the middle ground.

As most passive funds consistently outperform the fund management industry’s active funds, rather than focus on performance, it’ll pay you to concentrate on minimising your costs, particularly if you’re paying a broker, adviser or discretionary fund manager as well.

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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets

That's our opinion.  Not just because AJ Bell was the first company to offer an online SIPP.  Nor that it's received many prestigious awards.  And not even because the wife of SIPPclub's Founder has an AJ Bell SIPP.  It's because it's one of the most competitive stockmarket SIPPs on the market. 

Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).  However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.

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