Virgin set to cut 1% tracker fees ahead of Isa season

FTSE All Share tracker lost investors more than 10% in 2018

Virgin Money is reportedly due to cut fees on its tracker with a costly 1% charge ahead of Isa season and the end of the current tax year.

The high street bank will cut its ongoing charge on the Virgin UK Index Tracker to 0.60% on Friday 25 January, The Telegraph reports.

Virgin Money told Portfolio Adviser no announcement had been made and any changes to the fund would be communicated directly to investors.

From 30 September 2019, non-executive directors will be required to conduct an annual assessment of value for money on products, although many fund managers have been raking in revenue from high-cost funds ahead of the changes. The Halifax UK FTSE All Share Index Tracker and Janus Henderson Inst UK Equity Tracker are both more expensive with OCFs of 1.03% and 1.04% respectively.

Lang Cat director Mike Barrett welcomed Virgin Money’s move. “It’s good to see they’ve gone early on that by deciding that 1% isn’t value for money and lowering the charge accordingly. We would applaud them for that.”

Morningstar associate director for passive strategies Jose Garcia Zarate said investors have been paying “well above the odds” for years on end. Probably unknowingly, he added. But Garcia pointed out other funds are available for a tenth of the 0.60% OCF. “While the cut in fees will certainly help the Virgin tracker in terms of performance going forward, it still doesn’t make it attractive, just a bit less ugly.”

Virgin versus LGIM tracker

However, Barrett said: “It’s certainly not the cheapest but to be fair that gives you platform custody. You could look at someone like Hargreaves Lansdown, for example, where you’d be paying 45 basis points for the platform fee.”

The Legal & General UK Index Trust features on Hargreaves’ revamped Wealth 50 list with a discounted OCF of 0.04% taking the the total cost of investing to 0.49%.

The Legal & General and Virgin Money trackers were at opposite ends of the league tables for 2018 performance with the former losing investors 8.93%, based on a non-discounted OCF of 0.10%, and the latter falling 10.17%.

Positive press ahead of Isa season

Virgin Money had previously said any changes to the fund would happen once its joint venture with Aberdeen Standard Investments completed, which is due to take place in Q2 2019.

Barrett said the announcement due this week coincides with the end of the 2018/2019 tax year. “Why not try and get some positive publicity going into tax year end and Isa season and perhaps attract some flows it otherwise wouldn’t have got because of the negative publicity it used to have?”

The FCA implied in the interim asset management market study that 0.5% was too expensive for a passive equity fund and said investors would be better served switching into a lower-cost product. However, Barrett said the regulator was potentially just referencing the fund costs, whereas Virgin’s fee covers the total cost of investing when accessed directly through the bank.

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