City bankers and fund managers are 'skimming off' more than £7.3billion a year from the value of Britons' savings Photo: Getty
A range of questionable hidden fees and levies are being deducted from investments, making it difficult for a typical saver to make money from the stock market. Britain’s eight million investors are losing an average of £800 a year each to the hidden levies.
An investor putting £50,000 into a fund providing typical returns over 25 years would lose out on £108,000 because of unnecessary charges, said David Norman, a former chief executive of Credit Suisse Asset Management.
Customers have no way of claiming back their lost savings because fund managers are not doing anything illegal or beyond the rules. However, they are now likely to face increased scrutiny from regulators, while the Government could come under pressure to announce an inquiry to clean up the industry, which millions rely on to save for their retirement.
The problems have been compounded by the lacklustre stockmarket, which has hit savers as City firms have rushed to protect their profit margins by increasing fees.
Research has shown that fees in this country are far higher than those in America, where investment funds have been the subject of several regulatory and other official investigations.
Several senior City figures have decided to blow the whistle on the practices, with one fund manager describing the system as a “legalised cartel”.
Alan Miller, a former senior fund manager at New Star, one of Britain’s biggest investment firms, and a co-founder of SCM Private, told The Daily Telegraph: “The time is right for exposure of various elements of the industry.
“It is riddled with blatant self-interest and conflicts of interest that would never be tolerated elsewhere. Investors have become victims as the charges they have to pay have risen and risen while the returns they get have been consistently below par and the actual cost of managing their money has continued to fall.”
Research compiled by the Financial Services Authority and leading data analysts suggests that investors face losing three per cent of their investment each year in charges and fees. However, Mr Miller and Mr Norman said annual charges as low as 0.5 per cent were achievable.
When a saver invests in an ISA, unit trust or other fund, they are informed that they will pay an “annual charge” – typically 1.2 per cent of the value of their savings. The majority of funds levy exactly the same charge.
But the firm also deducts a range of other vaguely defined fees – covering everything from research to office costs from the savers’ money.
In particular, funds charge savers fees and commission every time they buy or sell shares. In some funds, hidden fees can be more than three times higher than the publicly-released annual fees.
For example, according to the data company Lipper, the Halifax UK Growth fund, one of the country’s most popular investment schemes, has only returned 7.47 per cent to savers over the past five years.
Therefore, someone investing £10,000 would have received interest of £747. However, that the fund has actually risen by 15.79 per cent and the extra returns have been pocketed by the fund manager and City brokers.
Data from Morningstar, a research company, shows the average investment fund has an annual charge of 1.25 per cent. But lesser known administrative fees amount to 0.45 per cent. And trading costs total another 1.35 per cent, according to the FSA and Financial Express. This 1.8 per cent being deducted from the total £406 billion invested amounts to £7.3 billion being “skimmed off” each year.
Julie Patterson, director of authorised funds and tax at the Investment Management Association said: “The UK fund management industry is one of the most competitive in the world.
“Less than 50 per cent of the annual management charge (AMC) is retained by the manager, to cover fund costs, including investment management and administration. The majority of the AMC is used to pay advisers, brokers and platforms. Charges for UK authorised funds are fully disclosed and they vary.”
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