‘The Transparency Detectives’ – far from being some sort of crime thriller, or piece of escapism as the name might suggest, this Radio 4 programme turned out to be something much closer to home. It was a very interesting documentary calling for greater transparency in the fees and charges associated with investments and financial advice.
We have long been advocates of greater transparency on fees across the industry, so this kept my attention for the duration of the show’s half-hour slot. Anyone wishing to listen to it in full can find it here, but I just wanted to touch and expand on a few of the issues it explored.
The programme focused primarily on pension funds, as these are often the largest investments many of us will make over the longest period of time during our lifetime. However, the points made are valid for any long-term investments administered with the help of fund managers and financial planners.
We have always endeavoured to be as open, clear and transparent as possible with our clients about our fees and those of the investment managers we use.
The reporter gave an example of Railpen, the pension fund of UK rail-workers which, with 350,000 members, is one of the biggest funds in the UK. They were one of the first to investigate more closely the presence and effects of underlying costs, and the scale of hidden charges. What they uncovered was eye-watering! Accounts for one year showed pension costs coming in at around the £90million mark, but deeper digging revealed the actual costs to be £289m, a discrepancy of some £200million1. This is an extreme example which uses a large fund to make its point, but it helps to illuminate the issue and shows why the move to tackle opaque fees across the investment industry is gathering momentum.
True and Fair
We have always endeavoured to be as open, clear and transparent as possible with our clients about our fees and those of the investment managers we use. This means digging down into the underlying charges below the surface and interrogating the fees quoted by fund managers. We have always sought to bring down investment and product costs for clients and with us clients see exactly what they are paying and why!
Quadrant Group, now part of Progeny Wealth, has long supported2,3 the True and Fair campaign (established by Gina Miller, who is now possibly better known as the person who challenged the British government over its authority to implement Brexit) in its activity over recent years. Alongside the call for total clarity on fees, the True and Fair campaign saw the importance of transparency for securing trust. One of the interviewees on the Radio 4 documentary explains how people’s savings are now at their lowest levels (proportionately) since the 1960s, which reflects the worryingly low levels of trust that investors have in the financial industry as a whole.
MiFID II Shines Spotlight
Clients must be given an indication of all expected costs and charges associated with an investment pre-sale, while details of the actual costs and charges of the recommended investment need to be provided post-sale.
Restoring trust to acceptable levels is a responsibility that rests with all those of us who work in the financial sector. There are regulatory changes which have just come into force which will help us make progress in the right direction. The recent MiFID II directive came into effect in early 2018. It might sound like the name of a distant planet, or the sequel of an obscure sci-fi film, but this piece of EU legislation aims to increase transparency around costs and charges and to make sure they are explained in the same way across the board.
It focuses on how financial investment providers, traders, brokers and advisers exchange information, how they charge clients, and how they disclose these charges to them. Financial professionals now have to provide all information on costs and charges related to relevant financial instruments and services. Clients must be given an indication of all expected costs and charges associated with an investment pre-sale, while details of the actual costs and charges of the recommended investment need to be provided post-sale. This includes all fees charged by the adviser or planner, the fund manager or any investment platform that has been used.
Balance of Service versus Fees
Legislation like this will help us towards a position of greater transparency across the industry. The benefit of this for investors is that it will be easier to compare the true costs of financial advisers, planners and fund managers which, in turn, increases competition and helps to keep charges lower for them. The further advantage of transparency is that it allows investors to appreciate not just how much they’re paying, but exactly what it is they’re paying for.
A fund manager’s charges relate to the transactional fees for buying and selling investments. At Progeny we focus on investment planning and governance combined with a structured goal-based financial planning process. This helps our clients plan specifically for their and their family’s financial future. It is a unique combination that delivers true value to all our clients in a transparent way.
In summary, increased transparency can help investors understand how much they are paying. This means more clarity and an ability to compare the competition, which should help bring costs down. It also allows clients to see what services they are paying for. This means looking beyond the transactional fees charged by fund managers and illustrates the advantages of targeted, bespoke financial planning advice tailored for each individual investor, to help them achieve their ambitions within their own specific set of circumstances.
It’s for these reasons, along with the important part it plays in restoring trust in our profession, that we have long been supporters of a transparent approach to charges. The benefits, for all of us, are clear to see.
If you would like any advice in managing your wealth and preparing for your financial future, please get in touch.
This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs.
1 Victoria Bell, Director for Trustee Accounting, Railpen, BBC Radio 4 programme, ‘The Transparency Detectives’, broadcast 28 January 2018: http://www.bbc.co.uk/programmes/b09nxznc