It seems we've seen the back of clean and super clean share classes, which is a relief as the whole thing was very tedious and did little to further the discussion about the value the asset management industry provides.
Of course, we have not done away with new, cheaper share classes, and it surely will not be long until no-load funds become more widely used in the UK.
But that's for another time. What we have moved on to is the cost of ownership.
Daniel Godfrey has done a good job in his first year in the hot seat at the IMA trying to generate a more rational debate about the cost of investing.
The cost of investing
He has done well despite the efforts of the disingenuous True and Fair campaign, and others with a self-interested agenda.
It is not a groundbreaking statement to suggest the industry is too expensive, and has been so for some time, so it is only right there is a focus on cost.
Where the industry is in danger of getting itself into a ‘clean/super clean’ straitjacket is how to define that cost.
Once upon a time, the TER was a very good way, and arguably still is, of measuring that cost. Its limitations, of course, are that it is only a ratio which is less than satisfying in a world made of simple people (regulators, consumers, journalists, and distributors). But it does include more of the real costs of running a fund.
The other more important issue is there are a number of ways of calculating the TER, which can make comparison between fund structures and providers difficult, to say the least.
Last week Invesco Perpetual decided to ‘break ranks’ and move its funds away from an annual management charge to a ‘Fund Management Fee’.
A point occurred to me: if you are Invesco Perpetual and you are about to lose your biggest asset as far as the private investor is concerned (Neil Woodford), then you need some positive PR.
But this move could still leave members of the public confused. With a simple bit of explanation, most investors can understand AMC. It is like line rental on a phone, or a road licence for a car: an annual charge you have to pay for that service.
But a Fund Management Fee? If it does not cover the annual charge, what does it cover?
Well, we all know the answer, or at least we should if we work in the industry.
Other groups have come up with variations on the theme – Total Cost of Ownership, ongoing charges/costs - while the IMA, in an ideal world, would like to express the cost in plain old pounds, shillings and pence.
But that is not going to happen because there are too many moving parts, so perhaps everyone should stop wasting their time trying to simplify something that is just too complex.
As many in the industry are wont to say: do you ask how all the components of an iPhone work, or how much they cost? No. You just want to know it works and delivers what you believe you paid for.
Is an investment fund really any different?
Lawrence Gosling is editorial director of Incisive Media, publishers of Professional Adviser and Investment Week. His views do not necessarily represent those of the company. Any comments to him at [email protected]
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