Wealth management customers set for fee shock in April – Financial Times

Wealth managers including Hargreaves Lansdown and Brewin Dolphin are opening up for the first time about their range of pounds and pence charges, under regulations that came into force last year, with statements landing on doorsteps in April.

Industry experts said they expected some customers to be left reeling by the “bamboozling” list of charges and higher-than-expected fees, with one investment platform saying the difficulty of gathering consistent data meant inaccurate figures would appear in customers’ statements.

Since last year, financial advisers and wealth managers have been subject to sweeping new European regulation known as Mifid II, aimed at improving transparency on costs and charges. The rules require them to produce a full annual rundown of the fees and costs their customers have incurred in the previous 12 months.

Most platforms and financial advisers are sprinting to include them in customers’ quarterly or annual statements, due next month. A small number of platforms will be holding off, since they operate on the basis of a different financial year.

The documents include a dizzying number of fees and will reveal for the first time a personally tailored summary of the actual costs and charges paid, including previously hidden charges, and how they have affected customers’ portfolios.

But the new rules have been dogged by controversy over the way key costs are calculated. And this week platforms said they were still waiting on crucial information from asset managers — weeks before the final deadline — potentially casting doubt on the reliability of the statements.

One leading platform said it was still waiting for data from just under half of the funds on its platform and admitted it expected some “wrong figures” to “filter through” as a result.

Fund houses have had to provide estimates of previously hidden trading costs since the start of last year, and must now reveal the actual costs incurred when they bought and sold investments.

Customers have always incurred such costs, but have never before been able to see them clearly on a single statement.

Last year, it emerged that investors in popular funds were likely to pay almost double the ongoing charge once transaction costs were taken into account. However, doubts were raised over the costs due to the recommended method used to calculate them, with some funds predicting zero or negative trading fees — an impossibility.

This week, investment companies said a lack of consistency in the way asset managers were calculating such fees and inconsistent information meant “wrong” numbers could find their way to investors.

One platform said: “If fund managers do not provide the ex-post [actual] fund cost in time then we will try to calculate it using the ex-ante [predicted] cost disclosures provided to us last year.

“We have a large number of funds and of course we do our best to filter out any clearly wrong figures, but some wrong fund manager figures can still filter through if the differences are semi-believable.”

Critics said customers could be in for a shock when they see the differences between funds’ expected transaction costs and the actual costs listed on their statements next month.

Some, though, may be pleasantly surprised. According to documents seen by the Financial Times, trading fees at asset manager Vanguard have emerged at just a fraction of the estimated charges, including on their popular Life Strategy funds.

Vanguard estimated its £3.4bn Life Strategy 40 per cent Equity Fund would incur trading costs of about 0.12 per cent on top of an ongoing charge of 0.2 per cent. In fact, the fund’s trading costs have emerged at just 0.03 per cent.

The company’s FTSE UK All Share Index trust has also cut its expected 0.15 per cent trading fee to just 0.03 per cent. This is in spite of Vanguard’s prediction last year that some of its funds were likely to double in cost when trading costs were taken into account.

Meanwhile, other asset managers including BlackRock said they expected to incur negative or zero trading costs, sparking fears of inaccurate numbers.

Wealth managers said customers might be less pleased to see the amount charged by their financial advisers and investment platform, following a turbulent year in markets.

Customers will see the fees they have paid as a percentage-based and pounds and pence figure based on the value of their portfolio at the end of the charging period. For those customers whose portfolio has shrunk, those fees could look unexpectedly high.

“Customers will be getting these statements for the first time when it’s been a very difficult market for returns,” said Jason Hollands, managing director at Tilney Group.

“If your portfolio has shrunk over the last year, and the portfolio was traded and reconfigured, maybe to adjust to a new risk profile, then the cost in percentage terms could look much higher than expected.”

Performance fees throw up issues too. A fund that performed strongly over the past year might have charged a performance fee, which asset managers would be forced to apply in modelling for the fund’s future cost, even though anaemic markets this year could make that unlikely.

Mr Hollands said: “Transparency is always good but it can also bamboozle people, because it’s too much information.”

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