UK investors being ‘ripped off’ because of lack of competition and transparency

The UK investment industry is operating against public interest, according to a new report that calls for the Office of Fair Trading to conduct an investigation into the retail investment industry.

The True and Fair Campaign argues that the investment world is hiding fees from investors and leaving them out of pocket. SCM Private initiated the campaign in 2012 to raise awareness on the lack of transparency within the industry. The organisation has been calling for a code of ethics that would invoke new 100% transparency measures on all transaction costs and management fees.

When compared to the US, UK investors are paying 58% more for investments on a like-for-like basis, the report said. In the US, investors also benefit from economies of scale that are passed on to them, receiving a discount of 33% on charges when investing in the largest funds, compared to just 6% in the UK.

Furthermore, a third of UK investors are unaware of the fees they are being charged by fund managers and only 45% of investors know their overall returns. The figures suggest that a lack of transparency is confusing investors and 73% said they would like to see just one cost number.

The current charges are also reportedly eroding over half of overall returns after inflation, with “double charging and cartel-like pricing” costing savers £2.6 billon each year in UK retail funds alone.

The Retail Distribution Review (RDR), which was brought in at the beginning of 2013 with the aim of improving transparency, has also led to a rise in changes. The unbundling of fees has resulted in overall charges increasing by 28%, the report said.

Gina Miller, who spearheads the True and Fair Campaign and is a founder of SCM Private, said, “After reading this report, savers should be up in arms and demand to know why successive governments and regulators have allowed these scurrilous practices to continue.

“For over ten years US investors have has a much fairer deal, and benefitted from an investment industry with higher standards and ethics.”

Whilst the chancellor George Osborne’s shakeup of the annuities and ISA markets will give investors a wider range of choices and is described as a “positive step” by the True and Fair Campaign, the group added that the budget completely ignored the “endemic crisis of fee transparency that is crippling the returns of pension and investment products”.

Miller added, “The budget illustrates that the government has finally woken up to the scandalous treatment of pensioners in respect to annuities. However, the annuity pensions’ shakeup is only a partial fix.

“If pensioners choose an investment fund rather than an annuity, they can still be ripped off, as they will not know the true total cost. Instead they could be jumping out of the frying pan and into the fire.

“Without fundamental change across all pension and investment products in terms of total cost and fee transparency, millions of people will end up simply being fleeced by another part of the investment industry.”

Further reading:

F&C: responsible investment ‘continues to gather momentum’

Investors want trustworthy, qualified and experienced financial advisers

Report: responsible investment ‘increasingly important feature’ across EU

Sustainable investment performance criticisms ‘out-of-date’

The Guide to Sustainable Investment 2014