UK investors have poured 92 per cent of the money they have invested into domestically domiciled funds in the past decade into cheap, passively managed index-tracking vehicles.
In sharp contrast, over the same time period 89 per cent of the new money invested in Luxembourg — Europe’s largest fund industry hub — has been pumped into more expensive actively managed funds.
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The UK banned independent financial advisers from receiving commission payments for selling funds in 2013, meaning they have no incentive to sell pricey active funds — most of which underperform cheap passive funds over meaningful time periods.
However, most of the EU has not adopted this model, and much of the retail distribution apparatus is based on banks and insurance companies selling their own, often highly priced, active funds.
“In the UK there are a lot of DIY investors [about 17mn], people who do not use an advice model,” McCune added. “They see passive products as a meaningful way to get diversification in their portfolio without having to do all the hard work and ongoing maintenance that you would with an active product.”