Gina Miller, Founder of SCM Direct & The True and Fair Campaign has commented on Legal & General Investment Management (LGIM)’s recent action in unbundling the price it pays for research in a bid to increase fee transparency across is active fund range.
Miller writes: “We have been saying for years that it is a total scandal that UK retail investors were secretly paying twice for fund managers to do the same job, researching the best stocks, firstly through the annual management fee and then secretly through inflated commissions to brokers who would then offer ‘free’ research back to managers to help them select the stocks.
“Of course the industry has met this criticism by either trying to deny its size or saying that any rules to bring full fee transparency into the industry, would have ‘unintended consequences’, which we can only presume would be a reduction in high profit margins in the City.
“L&G has broken ranks, ahead of MiFID II which will require asset managers to be explicit about all costs, by charging clients directly for the research costs rather than indirectly via inflated dealing commissions. From their numbers, investors can now see the real extent by which the UK industry were artificially keeping their own costs down by charging clients higher dealing commissions to receive research.
“Judging from the new charges and the new transparent breakdown shown by L&G, it would seem that the UK investment industry was secretly charging approximately an extra 14 per cent of the previously stated fees, in hidden research related costs. We have based this calculation on the extra charge as a proportion of the previously stated LGIM Fund Management Fee.
“We applaud LGIM for not waiting until the EU forces this change on the UK industry around 2018, but acting now. It is a great shame that the rest of the UK industry and its anti-consumer trade body, the Investment Association, are not following their lead.
“Dan Attwood of LGIM says: ‘It’s not necessarily what the regulator is doing, it’s about doing what’s best for customers and what we can do to improve transparency,' – hooray someone gets it!” Miller writes. “When will the other UK Investment dinosaurs wake up and grant investors their basic consumer rights of knowing exactly how much they are paying.”