Investment funds: hidden fees wipe a third off returns

andycole

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Interesting article that appeared in the Guardian newspaper on Friday the 4th November. Here is the link below to the full story and comments also follow after from different online readers.

I've included some paragraphs directly as below....

link - http://www.guardian.co.uk/money/2011/nov/04/investment-funds-hidden-fees


" An investor who puts £10,000 into the stock market over 20 years, and sees share prices grow at an average of 7% a year, will get back around £22,770. But the fund managers, financial advisers and up to 16 layers of other fee chargers – such as stockbrokers, lawyers, accountants and custodians – will take £15,927 from the fund over the same period."

"The figures come from David Norman, formerly chief executive of Credit Suisse Asset Management (UK), who is campaigning for transparency and fairness in fund management. He exposes a raft of practices in the industry which are leaving small investors short-changed"

"His core allegation is that fund managers only disclose the investment management component of the fund costs, not the total running costs. The annual management charge is typically quoted as 1.5%. Out of this comes a payment to the financial adviser who recommended the fund, and is paid every year even if the adviser is never in contact with the customer again. This amount is typically 0.5% of the fund. About 0.25% a year is taken by the trading platform on which the fund sits, such as those run by Cofunds, Hargreaves Lansdown or Fidelity. The fund manager keeps the rest, usually about 0.75%."
 
You refer here to unit trusts in the UK (and now OEICs and UCITs). There fund-types are similar to Unit-linked funds in Ireland. They are all sold through intermediares. But quoted funds are much better value and do as good a job and that includes the ultra low cost exchange-traded funds (ETFs). In addition, investment companies (actively managed by a fund manager) are also quite competitive in terms of costs.

Rory Gillen
 
Thanks for your reply Rory,

Can I ask would RaboDirect Investments be an example of an investment company here in Ireland (actively managed by a fund manager)?

Secondly are there places still available for your Investment Seminar in Dublin January 2012?

I am wondering myself whether the RaboDirect Investments is a good idea as a way of gaining experience in buying funds etc..
 
I have comprehensively covered this area of charges on AAM in the past. All the funds operating in this country work on the same fee basis. The only way to find out the exact level of costs applicable to funds is to find the TER (total expense ratio). But in good old Ireland this does not have to be reported. The only company that will will fully disclose the figures are Standard Life. The rest are a basket case and they refuse to release the details. There are loads of other hidden costs as well -- the B2 Y4 charges and the sales charges, which all amount to considerable amounts.

The article in the Guardian is probably a rfeplica to what I posted some 18 months ago. These report the complete facts, although Joe Public sticks his head in the sand. The best investments (IMO) are ETFs which have minimal costs but are investing in the same type/class as shares.

RABO funds are similar but if my memory serves me correctly, the charges are higher in their funds compared to most (not all) other funds.
 
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