(pictured: Neil Woodford)
by David Chaplin
Australian and other fund managers would do well to watch the fee disclosure debate currently erupting in the UK. The recent move by high-profile UK manager Neil Woodford to publish all-up fund costs “in an easy-to-find and easy-to read way” has set a new disclosure benchmark.
According to Guy Dobson, head of Dynamique, a New Zealand technical financial research, CPD and performance risk firm, the move is something NZ, Australian and other industries could aspire to.
Earlier this month Woodford, via his eponymous funds management firm, laid out a new disclosure template that provides a full breakdown of costs, covering: annual ongoing management charge; execution costs; research charges; transaction taxes; and, spread.
In a statement, Woodford chief executive, Craig Newman, said while investors were most interested in seeing investment performance after all costs, they would also benefit from more detailed information.
“… we also want our investors to be able to see the total costs taken from the fund – how much we have to pay to buy and sell stocks within the portfolio, and how much we have to pay in subsequent taxes, for example,” Newman said.
At the same time, the management company vowed to pay the group’s Income Fund research costs – which have to date averaged about 0.02 per cent of funds under management – directly rather than levying investors through the fund.
“Research costs are a function of our role and we believe it is only right that Woodford, not our investors, pay for it,” Newman said. “Only by knowing all the costs will investors be able to make a considered judgment on whether they are getting value from their fund manager or not.”
While Woodford has sparked an industry debate on fund disclosure standards, Dobson said regulators and consumer groups were already demanding better information on fees from UK fund managers.
He said the Financial Conduct Authority (FCA) recently launched an investigation into whether investors were receiving fair value from the UK funds industry.
As well as looking at in-house costs, the FCA said it would also look at fees paid to external investment consultants and ‘other middlemen’.
The UK fund industry was simultaneously gearing up for version two of the Markets in Financial Instruments Directive (MIFID) regime promulgated under a European Union ambit.
Due to take force in 2018, the MIFID rules require fund managers to disclose fees in percentage and pound terms – although UK authorities have not yet mandated uniform calculation methods or publishing standards for the industry.
Gina Miller, co-founder of consumer lobby group True and Fair, said the Woodford example was “extremely positive” for UK investors.
However, Miller said simply disclosing transaction costs in an ad hoc manner “will not help investors”.
“All costs should be shown in a clear and consistent manner on all fund manager websites, added up in a total cost of investment number – a ticket price, if you will,” she said in a statement. “I would also suggest that this number should be on all factsheets as this is the main sales document used by all fund managers.”
Dobson said the NZ industry was grappling with the same disclosure issues under the new Financial Markets Conduct regime as UK fund managers.
“New Zealand based wealth managers still struggle over ‘all-up’ fund management cost disclosures,” he said. “When taking a car in for a service a detailed bill is produced covering oil, service charges, parts and labour – the same must be done for managing money.
“This is even more important as fund yields decline and it becomes even harder for managers to generate a decent return for their wholesale and KiwiSaver clients especially if those investors are not keen to move up the risk curve.”
Dynamique offers financial industry performance risk solutions and retail investor CPD programs with offices in NZ and the UK. Dobson is currently in the UK.
– Investment News NZ