Is fee transparency push a waste of regulators’ time?

Research published yesterday added further weight to a view that seems to have a lot of merit.

Is fee transparency push a waste of regulators' time?

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Perhaps all the time and resource regulators ploughed into trying to push through greater fee transparency in the investment industry would have been better targeted at stamping out various kinds of fraud and reckless behaviour which do huge harm to individuals, and in some instances entire economies.

You may argue that a financial regulator should do all things required, which is true to some extent, but in the real world every pound or hour of a regulatory worker’s time can only be spent once. More time on fee transparency initiatives means less time on other things such as identifying fraud, clamping down on miss-selling or eliminating systemic risks.  

Fee transparency could readily be dealt with by market forces in that if there truly is demand for it among investors, industry bodies such as the Investment Association and individual firms will bring in appropriate initiatives as required, without the FCA or politicians getting involved. 

The concept of ‘fair fees’ is vague at best and completely flawed at worst. No fund or managed portfolio fee structure has any real meaning unless put in the context of the performance delivered.

Most investors will be happy with high fees for stellar performance and unhappy with poor returns even if the fees are at rock bottom. It is pretty clear that paying a 0.6% fee for annual returns of 20% is much better than paying a 0.1% fee for annual returns of 5%.

Unless there is outright deceit involved investors -assuming basic numeracy and some diligence- should be able to decide for themselves if fees are being represented in an acceptable way or not and vote with their cash.

Alongside all this is the elephant in the room; most investors do not see fees, let alone their transparency, as a top priority when making their investment decisions anyway.

The new research in question is a survey of 104 high net worth investors carried out this month on behalf of findawealthmanager.com. It found just 2% of those questioned saw rising fees as a reason to move wealth manager. In contrast 40% said they would move if performance was poor.

In terms of investors’ own priorities and satisfaction there is also the ‘personal touch’ element which should not be underestimated. A significant number of investors highly value the social interaction, reassurance and trust that can result from a friendly chat with their IFA or wealth manager. This is something which is fundamentally disconnected with fees as it is unquantifiable in numeric terms.  

The findings of this latest survey also bear this aspect out. A quarter of the 104 investors question said a ‘lack of responsiveness’ from their wealth manager would make them seek a new one, while 18% would look at a moving their money if their regular adviser changed.

“We often find that clients don’t necessarily go with the cheapest option when choosing between their best-matched wealth managers, since they perceive that paying slightly more for wider capabilities or superior investment expertise might be well worth it in terms of results,” said Lee Goggin, co-founder of findawealthmanager.com.

“It’s about what a wealth manager can add to the client’s bottom line each year once fees are stripped out. Ironically, it is often former DIY investors who see this most clearly,” Goggin added.

 

 

 

 

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