According to the IA, hidden fund fees could in fact represent the ’Loch Ness monster of investments.’
There have been claims that a fund’s true cost to the end investor is significantly more than the headline figures imply in many cases, but the IA said the evidence does not support this.
The industry body said it takes claims of hidden fees seriously, but it ‘has long noted the failure to identify conclusive signs of the existence of hidden fees.’
Using the data archives of fund research firm Fitz Partners, the IA examined the accounts of hundreds of equity funds.
It found that for the sample studies, equity fund returns are 0.71% above index returns per annum, higher than the -1.59% underperformance expected based on charges and transaction costs, suggesting there are not hidden fees in funds, the IA said.
The research involved first assembling ‘the most accurate average figure to date of all fees and charges’ then subtracting this from benchmark index returns to establish the post-fee returns one would expect from funds. The average bundled ongoing charges figure the IA established was 1.42%. Average transaction costs of 0.17% were added to form the average bundled equity fund fee of 1.59%.
Jonathan Lipkin, IA director of public policy said: “The industry should be judged on its actual delivery, not on perceptions of delivery. Our research with Fitz Partners is a detailed empirical analysis of equity fund performance in the context of quantified charges and costs. If you look at the actual performance delivered to fund investors, this is the proof point and we do not see evidence of high transaction costs, either explicit or implicit.”
“This research paper is long overdue and I trust it will be welcome by all stakeholders: investors, fund distributors, asset managers and also industry commentators, added Hugues Gillibert, founder of Fitz Partners. “This research makes no judgement as to what could be considered the right level of fund fees or what could be qualified as cheap or expensive, but by taking into account all costs borne by the funds and in turn by the investors and its potential impact on funds returns, it measures the actual value added by performing asset managers and the unlikely presence of significant transaction costs.”
The paper can be seen here
