A wealth management firm has called for the Office of Fair Trading to open an investigation into the pricing practices of the UK retail investment industry, which it accuses of ‘behaving as a cartel’.
According to the report published by SCM Private, UK retail investors pay 58 per cent more for their investments than their American counterparts. UK investors also don’t benefit from economies of scale, with the largest-sized funds charging only 6 per cent less than smaller funds, compared to 33 per cent less in the US.
Gina Miller, CEO of SCM Private, told Spear’s that this is because the UK investment industry lacks competition and transparency, with consumers finding it difficult to understand how much they are being charged and for what. ‘It’s very difficult to have competition if you haven’t got transparency,’ she said.
The report, which included a survey of more than 2,000 people in the UK, found that 29 per cent of British investors don’t know how much they are being charged for their investments and that only 45 per cent know their investment return, compared to 59 per cent in the US. It added that 73 per cent of them want to see all costs and fees displayed as one number and not as several percentages.
Miller, who spearheaded the True and Fair Campaign to increase transparency in the investment industry, has been advocating a one-number fee in since 2012.
‘[Consumers] would be able to see very quickly those high-fee-low-performing products and there would be a natural clearing out of those products because people just wouldn’t buy them,’ she said, adding that a one-number fee would also ‘encourage new entrants into the marketplace, it would encourage the economies of scale being passed onto the consumer, so you would create a much more efficient marketplace that would have better outcome for the investors.’
In February, thanks also to her campaigning efforts, the European Union passed the Markets in Financial Instruments Directive II, which requires investment and pension fund management firms to disclose the total cost of their investments – including the adviser cost, the product cost and the transaction cost – to their clients as a single number.
It will come into effect in January 2017 but the report accused the Investment Management Association in the UK of trying to ‘foil’ the directive by saying it won’t apply to collective investment funds.
SCM Private also campaigned for the introduction of an online calculator to allow private investors to compare products and providers. A proposal to introduce a calculator on the website of each member state’s regulator is currently being discussed by the European authorities.
‘We’re very pleased about that,’ Miller said. ‘What I’m not at all pleased about is the fact that the industry keeps coming up with excuses to why we can’t simply tell consumers the truth… It’s their money, they should know where it’s invested and what they’re paying – it’s very basic consumer rights.’