* Watchdog review proposes single "on-going" charge figure
* Watchdog to check changes being made to fee details
(Adds more detail, funds sector reaction)
By Huw Jones
LONDON, May 13 Mutual funds should use a common
method when explaining their fee structures to make them easier
to understand for investors, Britain's financial watchdog said
The government is trying to encourage people to save more
for their old age, but critics say fund fees are too confusing,
hinder competition, and eat up lots of the money built up.
The Financial Conduct Authority (FCA) said a review has
found that some firms did not provide investors with a clear,
combined figure for charges in their marketing material or on
A minority of firms failed to give a clear rationale for
their charging structures, particularly performance fees,
indicating insufficient consideration of investors when
designing charging structures, the review of 11 firms found.
"We believe that it is important for investors to clearly
understand and compare charges across the market as this,
together with fund performance and risk profile, are the key
areas that they should look at," Clive Adamson, FCA director of
supervision, said in a statement.
"We are therefore today encouraging all firms to respond to
our findings and adopt the clarity and consistency we believe to
Fund managers should consider the findings and review their
arrangements accordingly, the FCA said. It will check on whether
the changes are being made.
The review found that many fund managers were using the
annual management charge figure as the headline fee in their
marketing material. But this figure leaves out other substantial
The watchdog said it wants funds to use a so-called on-going
charges figure, seen as a better guide to fees.
The watchdog will work with the Investment Management
Association (IMA), a funds industry body, which has issued
voluntary guidance on the disclosure of charges and costs.
The IMA said all fund managers should use only the on-going
"This is an important element of the IMA's programme to
bring simplicity, transparency and comparability to consumers
across all investment types," IMA Chief Executive Daniel Godfrey
said in a statement.
The IMA, whose members manage 4.5 trillion pounds in assets,
will also produce a "comprehensive pounds and pence" measure for
historic costs, and a common basis for the calculation of
portfolio turnover rates.
This refers to how much of the fund's holdings of shares and
other securities were changed in the past year. A higher rate
would mean more trading costs are passed on to investors.
The True and Fair Campaign, which lobbies for clearer
charging by fund managers, said in a report in March entitled
"Legalised Looting", that retail investors in Britain pay 58
percent more for active equity funds than their U.S.
Last week the FCA tightened rules on how funds can use
customer money to pay brokers for research on stock picks.
(Reporting by Huw Jones; Editing by Hugh Lawson)