End the smoke and mirrors over cost of investing

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Imagine someone unfamiliar with the UK investment world asking the simple, straightforward question: how much does it cost to invest?

Very few could answer with any accuracy.

This affects millions: those saving for their retirement through a pension, those putting money aside through an ISA and those who buy into a stock market collective.

The secret cost is staggering. It amounts to £16.3bn every year. This figure is additional to the far more familiar two deductions of the initial fee and annual charge.

These costs already cut into investment growth but at least savers understand such expenses and, in some cases, reduce their liability by using a discount broker.

Research by Lipper reveals that 80 per cent of funds increased their fees between 2001-2011.

Of course, the ‘hidden’ element has to be disclosed. So that it is practically meaningless, investment providers present the cost as a percentage.

No one appears to actually quantify the amount they deduct in monetary terms.

That might be understood and there could be an adverse reaction from savers who would see they are being short-changed.

Fund managers hide away a figure known as the ‘total expense ratio’, which should be the full amount deducted.

It can be found in the small print of their fact sheets and the term is used by financial advi- sers.

Yet such a drag on performance could be far more easily set out.

The UK had the fourth highest total charges out of 19 countries. A staggering 79 per cent of UK funds have higher fees than equivalent collectives in the US.

To combat this investment secrecy, the fund managers running SCM, Alan and Gina Miller, have launched a ‘True and Fair Campaign’.

In February, they took their case to Westminster. The couple say: “The investment industry has been using smoke and mirrors to mislead consumers for too long.”

This is worrying when, according to Scottish Widows, 49 per cent of the workforce is not saving enough for retirement.

It will be interesting to see which other fund managers put their heads above the parapet.