Tool to cut through ‘smoke and mirrors’

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A NEW online tool launched this week promises investors a way to cut through what its authors call the “smoke and mirrors” used by investment firms to charge hidden fees and get a more realistic valuation of their investments.

The True and Fair Calculator works out the cost of investments in pounds and as a percentage, giving an estimate of returns after all costs and fees.

It is based on data streams from investment research firm Morningstar and was devised by True and Fair, a campaign to boost transparency in the industry spearheaded by Alan and Gina Miller, founders of wealth management boutique SCM Private.

It builds on a similar tool created by the United States’ Securities and Exchange Commission in 2005, which was used by more than a million consumers in its first three years.

Mrs Miller said: “We’ve created the True and Fair Calculator to provide UK consumers with a free public information service giving details of the investment fees and costs they pay, so they can make better informed decisions prior to purchase.

“We hope this drives new levels of cost transparency which results in greater competition among product providers, gives information to aid better decision-making by consumers and their advisers and provides a foundation for more realistic investment expectations,” she added.

Profits raised by the Calculator will be donated to charities for financial education and care for the elderly, True and Fair said.

The investment industry has come under mounting scrutiny in recent months as the public and regulatory backlash since the 2008 financial crisis spreads beyond the banking industry.

Further moves to strip away ‘hidden’ charges so investors can compare costs more easily and shop around for the best deal were announced by regulator the Financial Conduct Authority (FCA) last month.

The new rules mean that fees for investors using online ‘platform’ services will be more transparent because they must be clearly shown upfront and agreed by the investor instead of being disguised in other costs.

Platform services act as middlemen and give people an online view of their investments in one place.

The new rules are expected to come into force in April next year, but platforms are being given an extra two years’ grace until April 2016 to move existing customers to the new model of making charges explicit.

Mrs Miller said that these plans are to be welcomed, but added that it is important to “keep up the pressure” on the regulator so that they don’t “just become rhetoric”.

She added: “We want to see the UK re-established as the gold standard for transparency, and for trust in financial services products and providers to be rebuilt, and to do this we must prevent another generation of investors sleep walking their way into buying inappropriate investment products.

“Those firms offering good products, that deliver strong performance at competitive fees, will presumably welcome the fact that consumers will have the ability to clearly see the value that their products deliver via the Calculator.”

Announced the latest changes last month, Christopher Woolard, the FCA’s director of policy, risk and research, said that platforms provide a valuable service, but that investors are often unclear on what that service costs.

“These changes will allow both investors and advisers to compare the costs of investing through different platforms and make an informed decision on whether using a platform represents good value for money.”