Fund charges and transaction costs consultation launched

The Investment Association (IA) has launched a public consultation on the creation of a fund charges ‘blueprint’ for asset management firms.

The IA, which is the trade body for the asset management industry, has proposed an industry-wide code that asset managers should adhere to when reporting fund charges and transaction costs.

The IA code states various things, many of which are industry-focused; as far as consumers and investors are concerned, the most relevant point is that it has been proposed that portfolio turnover and transactions costs should be reported by fund management firms.

If this is achieved it would make fund charges much more transparent, as at present transaction charges are excluded from the ongoing charges figure (OCF), meaning that consumers do not know what the true cost of the fund actually is.

The IA’s proposals echo those of the Financial Conduct Authority (FCA), which last November waded into the transparency debate. The FCA, among other things, suggested a single 'all-in-one' fund charge should be introduced, so that investors can easily see what has been taken from the fund.

One of the ideas on the table from the FCA is for asset management firms to provide an estimate of any implicit and explicit transaction costs, which will then be included within the OCF. This and other proposed remedies have been put to a separate consultation by the FCA, and will be published at some point in the next three months.

Jonathan Lipkin, director of public policy at the IA, said: ‘The asset management industry is fully committed to transparency and recognises the need to provide clear disclosure of both charges and the transactions costs incurred as part of the investment process. 

‘The new code provides for the first time a common framework for enhanced disclosure across investment products and services. It is a major opportunity to consistently define and provide data on charges and transaction costs.’  

The IA’s consultation ends in May.

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