Investor returns are being hurt by hidden costs that are at least as big as the visible costs in actively managed funds, according to a paper by the Cass Business School’s Pensions Institute.
Read On the Disclosure of the Costs of Investment Management (pdf)
The paper calls for asset managers to disclose all visible and hidden investment costs that are ultimately borne by the investors.
Research suggests that concealed costs – such as bid-ask spreads and transaction costs in underlying funds – can make up to 85 per cent of a fund’s total transaction costs. The remainder is taken up by visible costs such as commissions, taxes and fees.
“There is little point in requiring transparency where the reported measure for ‘costs’ does not include all of the costs,” said Professor David Blake, director of the Pensions Institute.
“If total investment costs are not ultimately disclosed in full, how can there ever be an effective and meaningful cap on charges, and how can active investment managers ever asses their true value added?” he added.