The managing director of UK business thinks there is a fundamental problem with transparency in the fund management industry, which is misleading many investors. He believes a standardised system to display the breakdown of costs would be a significant improvement compared with the current system.
"We are seeing selective and partial ‘Ryanair’ pricing start to emerge which runs the risk of misleading investors about the real costs they are paying," he said. "A consistent way of showing charges is essential to restoring investors’ trust in the industry and encouraging them to feel confident to save for the future."
"A lack of clarity around costs is distracting from the real benefits that investing in funds has brought to millions of people in the UK and around the world. The communication of these charges needs to be more accessible to investors, visible at the point of purchase and brought into real 'pounds and pence' terms."
As well as the annual management charge (AMC), Shaughnessy thinks the "total cost of owning a fund" measurement should include the cost of advice or distribution, platform administration charge and dealing costs and stamp duty. This comes in spite of a recent study from the Investment Management Association (IMA), which claims to have proven that trading costs are largely irrelevant.
Fidelity believes both the percentage charge and actual cost per £10,000 investment should be published, so as to maximise transparency. For example, the group’s own research found that the average total cost of owning an actively managed £10,000 fund on the Fidelity platform is £200 – or around 2 per cent – a year.
Shaughnessy thinks this clearer method would prevent companies from intentionally misleading investors with cost comparisons.
"The current debate on charges is a healthy one, but many comparisons are misleading and suffer from hyperbole," he said.
"Some companies are only presenting part of the picture and, crucially, they are failing to show the cost of advice or the cost of the platform without which investors would not be able to access the fund."
"Others have very high minimum investments and are only available to high net-worth individuals. There are a lot of headline figures currently being bandied about but they do little to help investors understand the true cost of investing or to evaluate whether these costs are fair and reasonable for the service they are receiving."
"What will really help investors is a transparent and standardised cost breakdown in pounds and pence," he added.
Bestinvest’s Adrian Lowcock, who recently hit out at the IMA for misunderstanding the true problem of fund charges, says terms such as AMC and TER (total expense ratio) are inadequate measures of cost.
"Surely AMC should equate to the amount you pay a group for managing you fund, but this clearly isn’t the case," he said. "Even TERs don’t express the true cost of managing a fund, which is ridiculous."
"Some people don’t want to go into detail and find out exactly what they’re being charged, or simply don’t have the time. There should be a single figure that ensures everyone knows where they stand."