The asset management sector is under scrutiny - and while it often is and quite rightly should be - the latest report from our regulator (the FCA) packs a more direct punch than some of its previous reviews.
While it flagged that a lot of good is achieved by the investment industry, the publication also identified a number of areas for improvement.
One of those subjects under the spotlight was that of fees and charges.
It transpires that research the FCA ran ahead of their work found that 51% of investors didn't think they actually paid any fees and that a further 22% just “weren't sure”. Of course all investors pay fees and I am sure that fees would (indeed needed to) have been discussed when they originally invested. For me though the underlying issue may be the complexities of answering the question ‘what fees do I pay?’ It’s in a similar vein to the response to ‘how long is a piece of string’. It’s different for everyone and so, unfortunately, it’s not a topic often raised proactively.
So what fees do actually apply?
Fees can essentially be broken into two buckets: investment fees and service fees. And when you invest you have to pay both, even if you’re a DIY investor as there will be costs such as a platform service fee or a dealing charge.
It’s a bit like paying for your car MOT: when you go to the garage, you have to pay for the qualified mechanic and the cost of any spare parts. And even a DIY mechanic has to pay for the delivery of the spare part(s) and for the use of a local council test centre.
To make things practical, I’ll use a 7IM example in our discretionary service. This is where we agree with a client what they want to achieve with their investments – which of course as with any investments can go down with markets, as a well as up, and could return less than you originally invested. Then we get on with professionally managing the money while they get on with… well, whatever they want.
On the investment side, clients pay an Annual Management Charge for each of the fund strategies in which they’re invested, as well as paying any audit and trustee fees etc. that may also be due. All these figures are usually bundled up in the fee called the Ongoing Charges Figure (OCF), and which also includes any VAT that may be liable on the services included in this charge. These are published on the fund factsheet and the key investor information document (KIID). The OCF represents a good all-in fee for use for comparison purposes.
On the service side, when we’re making the investment decisions for clients, there’s a fee to cover the work we do in making sure the money you have with us is in line with your investment goal and is working for you. That fee starts off at 0.25%+VAT on any investments up to £500,000, but we then lower the fees if you invest more with us and they’re capped at £1mn.
Yes, that’s a lot of money, but it’s worth remembering that we offer family discounts so you can hold your own investment accounts, but for the purposes of fees, share the benefits of our sliding fee scale with your nearest and dearest. So, while you won’t know what any of the details of their accounts are or they know about yours, for fee purposes you’ll all be bracketed together.
It’s also worth noting that 7IM don’t charge for a lot that our peers would. We don’t charge for dealing, the safe custody of fund assets, tax vouchers, capital gains tax reports and valuation statements. Exit fees are also not due.
15 years ago when we set up 7IM, we set out to be clear and transparent about our pricing. For us it was – and remains – really important that everything should explained on one sheet of paper so that an investor could understand exactly what they’re paying and not paying.
We recognise that sometimes it’s quite a lot of information, but we would rather present you with all the facts than give you the details in dribs and drabs only for you to find that you’re facing an unpleasant surprise later on down the line. That just doesn’t make sense to us.
Justin Urquhart Stewart
Co Founder and Head of Corporate Development
Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales No. OC378740.
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