Some tracker fund charges are costing 20 times the cheapest possible rate on the same investment, according to an analysis by AJ Bell.
Each year, investors holding funds with the most expensive tracker would pay £106 in management fees on a £10,000 investment, while those with the cheapest tracker would be charged £5. AJ Bell commented that due to the current Advice Guidance Boundary Review regulations, platforms could possibly be penalised for informing customers of this discrepancy if it was considered financial advice.
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Laith Khalaf, head of investment analysis, said: “At the moment, platform providers can identify customers who hold higher cost tracker funds, but can’t contact them to point this out as this could constitute personal financial advice.
“The regulator is currently reviewing the dividing line between advice and guidance, and this is an example of how relaxing the rules could help investors to make better, more informed decisions.”
When passive funds were modelled with 7% growth of £10,000 over 10 years, the company’s analysis found there could be as much as a £1,800 difference in an investor’s portfolio. The cheapest tracker gave an end result of £19,580 and the most expensive £17,807. At a larger scale of £100,000, investing in a mixed portfolio across global equity markets could yield a difference of near £9,000 depending on the tracker fund.
“It might come as a surprise, but not all tracker funds are created equal,” Khalaf said.
“There can be a big gulf in charges, and over time this can produce a seriously large dent in your nest egg if you happen to be invested in a higher cost tracker. With no chance of outperformance because they invest passively, the difference in returns between comparable tracker funds will be largely dictated by fees. It therefore makes sense for investors to seek to reduce costs where possible, and sometimes this means voting with your feet and transferring to a new provider.”
AJ Bell chalked some of the differences in cost up to the change in the passive fund industry over time. While funds used to create their charges as an all-in fee, there are now some modern investment platforms that can provide more affordable rates. As it stands, for the UK region, the most expensive fund charges a fee of 1.06% compared to the least at 0.05%. Global funds have a highest rate of 0.62% and a lowest rate of 0.12%.
