The real cost of Investing -- Independent investigation

Fund management fees eat away an average of 43% of investors' returns over a 10-year period, according to an investigation by magazine Money Observer into the true cost of investing.

Equity funds were the worst for eroding gains, with just investors receiving an average of just 57% of returns after charges.
"Management fees might not make much of a difference over a year or two. But over a decade, it adds up to around half the underlying performance of the average based equity fund," said Money Observer.

Equity fund managers maintain that the high charges are justified because they fund the research that allows them to root out the best undervalued companies to add growth to their portfolios.

The editor of Money Observer magazine, said: "Our investigation reveals that a truly shocking amount of money has been taken out of open-ended funds by their managers. What's even worse is that these figures take no account of the private investor's buying and selling costs, which would further reduce any gains they have made, or magnified their losses.

"We are calling on fund management groups to make their charges far more transparent and, as UK investors pay the highest charges in the world for active fund management, they must also be reduced."

Here is the full story which I found after been directed by professionals in the investment business. If you are invested in the market of funds, it might be well worth your while reading the link. Enjoy and you have been warned ---- www.moneyobserver.com/sites/moneyobserver.com/files/fundfee_0.pdf

I think one has to stick to individual stocks, ETFs, index funds and closed ended investment trusts. Unit funds are way too expensive. Trailing fees from financial advisors are a joke IMO.

ringledman said:

Unit funds are way too expensive.

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Noted and the main purpose of this thread. Has anyone noticed as to how much money is invested in these type of products in this country alone. Billions of Euro, and when a investor asks what charges they are paying or being charged, they are told a complete set of lies. The market is a free for all and the average Joe is being filled up with the greatest bull.

It would be in everybody's interests to print off the attachments on the earlier posts, sit down and read them carefully. Only then will anyone be able to decide where to go and what to do.

TER's

Totally agree that fund companies should disclose what the true cost of managing a fund is through a more comprehensive (albeit not all encompassing) TER.

Fund companies are an easy target and you probably won't get too many here defending them. But let me add some balance to what has been said thus far.

ETF's are clearly cheaper - anywhere from 8 bps - 90 bps in charges versus 1-1.5% and higher in some cases for unit linked funds.

BUT, Life companies have totally distorted the pricing in the Irish market through the commission they pay and the ability of advisers' to reinvest commissions to achieve higher initial allocations. So you cannot simply look at the ongoing AMC (annual mgt charge). You must also consider what gets invested from day one. If I start with 103% upfront and a 1% AMC (a typical nil commission structure), I'm actually better off after 5 years under this structure than starting with 100% initial and an annual fee of 0.25%. So, it's not as simple as saying better off with ETF's and individual stocks. Due to pricing distortions of Life company accounting, it takes some consideration and analysis.

Maybe unit linked fund TER's are a lot higher than their AMC's. If so, then the above analysis needs to be adjusted accordingly. Also, above analysis does not take account of taxation issues.

Well the only matter that the Investment companies cannot be blamed for is the Taxation matter. This is apportioned by the Government and cannot be blamed to the Investment or Life companies.

In many funds the Management Charge is 1.75% plus all the other Management Fees which can bring the Total cost to in excess of 2%

However there are other charges in incuding the 12b-1 charge which is charged to each and every Policy and can amount to another additional 1% of charges whether the fund value goes up or down. There is then the Sales charges incorporated in the funds (charge unknown but can be up to an additional 1.5% per policy to each fund), and is charged again regardless.

So in case a Broker or Agent tells you that they are offering you a great deal they are not. It is a minefield out there and something that you will not be advised of the truth. Read the article in Post 2 on this thread and then decide.

Now as a form of exercise I have tried to find the TER of the funds operating in the Irish Market. After writing to a number of these funds operators, the answers I received were incredible -- New Ireland - we do not have to disclose this as the Govedrnment do not deem it neccessary. Zurich Assurance -- not prepared to disclose. In fact the only companies willing to release the information was Standard Life. And as for the 12b-1 charges, this is really a case of don't mention the war. As with Sales charges, policy holders are paying these continually as long as their policies remain live, not just a once off fee.

And the funny thing about all of these charges, is that I have been pretty public concerning these for quite a while. If I was in any part incorrect, somebody would have tapped very clearly on my shoulder to tell me I was out of order.

Today, October 17 2010, another important investor website published an article concerning the same issues. Have a read of this link http://www.citywire.co.uk/money/investing-in-funds-beware-the-hidden-costs/a439184, and then decide which route is best for investments.

I am not a sales man or have any connection with any party associated with investments. Just a perplexed investor determined that the truth comes out into the open.

Hi Mercman, Would you mind publishing standard's life reply? I previously tried to get TER information from them but failed. Thanks, Sean.

SPC100 said:

Would you mind publishing standard's life reply?

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Sean, No my preference would be, not to make public, my own private correspondence I have had. In sating that I found Standard Life to be the most willing of all the FPs to provide information. If you are invested in an International fund operated by Standard, you will find the TER on their UK web site, which should provide an approximate cost base. In the UK it a legal requirement to provide the TER for all funds offered to the Public, where in Ireland it is not a requirement at all. Bear in mind the TERs offered in the UK do not allow for b12-1 fees or sales forces fees which are another pile of charges levied on investment funds, and deducted annually.

I'm invested in their (no longer open to new entrants) non standard PRSA product in index tracking funds. (qouted at 1%AMC) As there may not have been a large take up of the product, I feat that transaction fees, trustee costs etc., could be taking a considerable chunk out.

I have written before about no TER required in Ireland. This is a disgraceful situation.