The chief executive (pictured) has once again played down the impact of trading fees on total cost of ownership, and says the upcoming retail distribution review (RDR), which will come into effect in January 2013, will make the current system even stronger. "The TER, shortly to be replaced by a slightly tweaked version to be known as the 'ongoing charges' figure, gets criticised in some quarters because of what it leaves out," he explained.
"It does not include entry or exit fees, performance fees, or the costs of trading the underlying portfolio."
"[However], some of these are pretty immaterial, or are becoming so. Exit charges barely exist for retail funds. Performance fees are also rare."
"As for entry, or initial, charges, these have been in decline for some time and are likely to be given a hefty push out of the door when the retail distribution review is implemented in January."
"These days they are primarily used to pay commission to advisers and that will no longer be possible after January."
Saunders says the issue over hidden charges, which was a key aspect of SCM founder Alan Miller’s campaign for a more transparent system, has been overblown.
"It is important to remember that the effect of trading costs cannot be separated from the impact on fund returns of the investment decisions which led to the trading in the first place," he explained.
"Managers trade stocks because they believe it will improve returns to investors. Sometimes they get it right, sometimes not."
"But because the price of the fund is published every day, it is possible to track net performance – the return that the investor actually receives – very accurately."
Saunders argues that these trading costs have a minimal impact anyway.
He commented: "The IMA statistics team looked at net returns in different equity sectors over different time periods and compared them with the relevant index."
"And guess what? The match with the TER was very good. Tracker fund returns differed from the market by broadly the amount of the TER. Active funds did so too on average; if anything a tad better."
Saunders says he will encourage greater transparency by making the breakdown of costs more accessible – something that he had previously resisted before Fidelity’s ex-managing director Gavin Shaughnessy hit out at the current system.
All in all, however, he remains adamant that the current system will endure, in spite of pressure from all sides.
"If the fund underperforms, that is the result of investment decisions that have not paid off, not because extra costs are dragging it down. We don't need a new [system]. We've already got one," he finished.