Here is a subject so boring that I cannot even bring myself to write about it properly. That’s what makes it such an excellent example of the petty frauds I described in a previous post, Of stealth, taxes and irksome tasks.
You almost certainly hold units in a unit trust, directly or indirectly, perhaps (if you are intelligent enough to want to beat the professionals who systematically underperform the market) in a passive index-tracker fund. You may even have been astute enough to buy these units directly from the fund manager to avoid paying some financial adviser a commission he has done nothing to earn. You may have done this years or decades ago, and never since reviewed the position.
And, unless you are a professional, it is almost equally likely that you do not know what the RDR is, and have only the vaguest idea what clean or unbundled units are.
You will of course have a general sense that investment management, like insurance, inhabits EC postcodes adjacent to banking, and probably suspect that some moral seepage has been going on. So it won’t altogether surprise you that the FSA/FCA has fiddled with the rules on price transparency to shine some disinfecting sunlight on commissions and similar practices – that was the “Retail Distribution Review”.
But unfortunately even broad daylight can’t get through the pea-souper of nonsense that has been generated by this exercise. It is now practically impossible to figure out what type of units you own, whether you should switch to a different class, whether you have already been switched without your knowledge. In many cases if you can keep your eyes propped open for long enough to figure it out you will find that instead of direct holdings with the manager of the fund, you will be better off with “clean” units held by a third party “platform”. To take a single example among my funds, I have been paying 0.82% p.a. to a manager on a holding which I can transfer to such a platform where I will end up paying only 0.15% to the original manager, and an additional 0.03% to the gratuitous intermediary. It appears (in this case) that this can be done without triggering a charge for capital gains tax purposes. It is claimed (although I do not accept) that the manager was under no obligation to tell me about this opportunity.
But there are other tracker funds where I am suffering similar all-in costs (far higher than the annual management charges disclosed at the time I bought the funds) but where no alternative class of units exists. Here, because the market has risen considerably over the twenty years I have held the units, I cannot escape: the impact of capital gains tax (and the absence of any kind of rollover relief) makes me a hostage to the predatory pricing of the manager. Free portability is a necessary condition for effective competition.
It is perhaps less accurate to describe unitholders as zombies than as the victims of the paralysing drugs administered by priests in ancient Peru to facilitate the extraction of their beating hearts.
Was this the best the FCA could do?
From → Finance