The vast majority of schemes find the lack of transparency in fund management charges a major concern, according to the third part of schemeXpert.com’s investigation into pension scheme attitudes
UK pension schemes have hit out at fund managers over what they see as a lack of transparency on investment fees, a schemeXpert.com survey has found.
Communicating fees with members
The survey found schemes communicate fund management fees with members in a number of different ways:
Pensions manager, £700m DB scheme, 9,500 members: “Fees are disclosed in the short version of the report and accounts sent to all members.”
Head of pensions, £1.3bn public sector scheme, 47,000 members: “Summary investment management fees are regularly disclosed in publicly available reports.”
Pensions manager, £780m hybrid scheme, 9,000 members: “Members of the DC scheme are notified of the fee structure when they choose their investments.”
Schemes that take control of their costs are better placed to provide their members with a suitable income in retirement.
But the poll of 20 schemes – with combined assets of £27.5bn – found most respondents did not feel their fund managers provided them with enough information on charges.
“Hidden fees and soft commissions should be illegal – there is no excuse for them,” said an independent trustee whose schemes have more than £2bn of assets combined.
“If I find hidden fees I demand they are withdrawn and if the hidden fees remain I will look for a new fund manager.”
But despite the ill feeling by many respondents towards fund managers that did not provide full clarity on investment fees, there were some who felt more transparency could lead to more confusion.
The survey also found a high proportion of schemes make their investment charges publicly available to their members, even though many admit the information is rarely accessed.
Opacity in pooled funds
A number of the survey respondents who invested in pooled funds said it was hard to separate out the costs charged by the fund manager. This often led to suspicion that many charges were invisible.
“Greater transparency and consistency would be beneficial to trustees and plan sponsors,” said the scheme secretary of a £1.5bn fund that invests solely in pooled vehicles.
“We do not have visibility of the total expense ratios of the fund managers and to what extent the larger clients may subsidise the smaller ones for the fixed manager costs.”
Other respondents complained about not being provided with enough information on custody charges, transaction fees, layering costs in multi-manager products and any stock-lending revenue that was received by passive managers.
Last week schemeXpert.com looked at the types of additional charges schemes were more likely to accept and which ones they were more likely to challenge.
Revealing fees to members
Of the 20 schemes that completed the survey, just three said they did not provide their members with details of investment fees. None of these were defined contribution schemes.
We would not expect a large proportion [of members] to be aware of the fund management fees
Secretary, £1.5bn scheme
But while the majority of schemes that made their members aware of fund management fees did so through publicly available reports, many admitted it was rare that members would be interested.
“[Members] are informed but we would not expect a large proportion to be aware of the fund management fees,” said the secretary at a scheme with more than 17,000 members.
Another respondent simply replied: “You can lead a horse to water but you cannot make it drink.”
The pension manager at a £780m hybrid scheme said DC members were provided with details of the fee structure of the various funds when they chose their investments.
Too much transparency?
But despite the majority of survey respondents demanding more clarity on investment charges, there was a small number who felt there was an added risk if trustees and members received too much information.
The pensions manager at a £2.2bn defined benefit scheme with 41,000 members said too much transparency could lead to an added complexity.
“Until we have a clearer and more standard way of fees being explained, further information would probably confuse rather than clarify,” she said.
“But it is hard to see where the will is for this to happen.”
