'Opaque' Practices Damaging UK Fund Industry's Growth
By ETF.com Staff | 14 February, 2012

The lack of transparency in the UK investment fund industry is deterring many Britons from investing, according to a new report by SCM Private.

While studies consistently show that around one fifth of those living in the UK do not have any savings and many are not properly prepared for retirement, the SCM Private report revealed that almost two thirds of people would be prepared to invest more if greater transparency and clearer product labeling was used in the investment industry.

In a study of over 2,000 adults commissioned by the fund manager, only 19 percent of respondents knew exactly how much they were paying in fees and charges, and 89 percent said fund managers should be required to provide a full breakdown on fees.

The SCM report found that even financial advisers themselves didn’t understand fund providers’ costs fully.

“Anecdotal evidence gathered by the authors of this report found that even the heads of research within some of the largest advisory firms did not know that the TER does not include dealing costs,” said the report, entitled Promoting Transparency and Trust in the UK Investment Management Industry.

“The odds are stacked against consumers being able to make informed and competitive investment decisions,” it added.

The report follows the launch of SCM Private’s True and Fair Campaign two weeks ago, which calls on the UK investment fund industry to provide 100 percent transparency on where investors’ money is placed, along with the full underlying costs of those investments.

SCM Private said that the UK investment management industry was lagging its US counterpart in terms of both pricing and transparency, and that regulators needed to take firmer action in enforcing change.

It highlighted a lack of disclosure on securities lending—a practice commonly used by ETFs—as one area in which change was needed.

“Not only are the levels of transparency of holdings for UK investors far behind those in the US, transparency in respect of securities lending or stock lending are completely opaque in the UK,” it said. “Within the UK, the FSA allows up to 100 percent of clients’ funds to be lent out without any requirement to publish daily individual exposures, borrowers’ names or the precise makeup of the collateral backing these loans.”

Commenting on the report, Gina Miller, co-founder of SCM Private said: “The majority of commentators, even the Investment Management Association, have conceded there are serious issues around transparency of fees and transparency of holdings. Consumers have a right in the modern internet age to be able to see all their holdings online and regularly rather than occasionally and via the post. These standards have been in existence in the US since 2004.

“The UK investment industry needs to regain consumers’ trust by raising standards and providing easy to understand, fully disclosed fees; as well as regular and fully disclosed investments. Rather than pretend the problem does not exist, it would be preferable for the industry to get round the table and discuss solutions. The current UK system simply does not work.”

 

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