- January 13, 2018
- Bob Quinn
You may think you know what fees you are paying on your investment funds. Think again.
Without knowing it, you have been paying a sneaky levy to the financial services industry.
The Annual Management Charge (AMC), right? Your policy document clearly spells it out – it’s usually between 0.50% and 1.50% typically.
But that’s not what I’m talking about. I am referring to a raft of murky, undisclosed fees and charges that have been subtracted from your fund unbeknownst to yourself.
If it was a few per cent you might well accept that as the true cost of managing your fund. What would your reaction be if it was 40%?
Yes, I did say 40.
Up to now, investors could do nothing more than speculate because the AMC was the only charge life companies and fund managers were obliged to disclose.
But I mentioned back in October that new legislation was coming down the tracks that would oblige life companies to make public the true extent of their fees and charges. It has come to pass.
Since 1st January, new disclosure rules on what are known as packaged retail insurance-based investments (Priips) force insurance companies and other fund providers (though unfortunately not pension providers) to detail risks, charges and potential rewards in a standardised pre-sale format.
Turns out my suspicions were well founded.
How does it feel to have been taken for a ride?
The Sunday Times published a couple of examples of disclosures.
Friends First’s flagship Irish property fund returned an average of 7.46% per year since 1984. That’s not a bad return, until you learn that hidden fees and charges, detailed in the disclosure, wipe 3.35 percentage points off its earnings, leaving the ROI at 4.11%.
That’s almost half the return wiped out.
It’s still better than a deposit account, you might be thinking, but remember that fees and charges apply even when the fund loses money. And the point is, you might not have agreed to the investment had you known the true cost.
Zurich Life’s dynamic managed fund wipes an average of 3.35% percentage points a year off its 5.7% return (calculated by The Sunday Times based on a €10,000 initial investment held for seven years), or €4,300 in total over the seven-year period.
Do you really think you would have agreed to that fund if you knew you’d be paying over 40% of it in murky fees and charges?
We have all been duped.
I have no problem paying for a service, but what additional service are you paying for here? None. Some of the charges are accounted for by government levies, but a fair chunk of them cover commissions to brokers and intermediaries.
You, the investor, are paying to support the industry. The tail is wagging the dog. The industry, until now, got away with it.
What to do
Ask for the Key Information Document (KID) from your Priips providers to learn the true extent of fees and charges and how they will affect your potential ROI.
Let’s get this straight.
- It’s your money.
- You bear all the risk.
- The life company (and your so called adviser) has hidden these charges from you (up to now).
I have been banging on about this for some time. I really hope that the Priips disclosure rules will finally galvanise investors like you into action.