UK fund fees among the lowest in the world

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Fund fees in the UK are among the lowest in the world, according to data published by Morningstar.

UK-domiciled funds have a median cost of 0.83% for allocation, 0.84% ​​for equities and 0.55% for fixed income, according to the latest Global Investor Experience study from the society.

The report showed that the majority of the 26 markets studied had seen a drop in fees since 2019, when the first study was published, notably in allocation and equity funds.

However, the UK saw the largest declines in cost of funds.

He said that in the UK, investor-friendly regulation, such as the banning of up-front charges as a means of paying commissions to distributors, and the separation of advisory fees from embedded ongoing fees as one of the main reasons for lower fees.

Although the UK is leaving the EU, he added, UK laws still comply with EU directives, which means investors have a choice whether or not to invest in locally domiciled funds. , as well as in Ucits funds operating under the temporary authorization of the Financial Conduct Authority.

The expense ratios of funds domiciled in the UK (portfolio management, administration, marketing and distribution costs) are also lower than those of funds located outside the UK.

Andy Pettit, director of policy research at Morningstar, pointed to the introduction of retail distribution review and value assessments as the main drivers of low fees in the UK.

“It has become commonplace for investors to pay a fixed commission or percentage of assets directly to an adviser for investment advice, which has also led to the massive creation of share classes that investors can buy without paying fees or retrocessions.

“It also opened up certain institutional share classes to retail investors with minimum investment amounts removed,” he said.

The introduction of value ratings for fund companies in 2020, after the FCA found weak price competition and high fees in its landmark review of asset management, ended a ” race to the bottom” for the fee, Pettit added.

“Value assessments are useful in that they are not limited to price, but also to other service elements including performance, administration and economies of scale,” he said. declared.

“I think it helps to give a bit of balance and stop that pressure to reach the bottom, and at this point I think that’s a healthy balance.”

He added that the introduction of value assessments has been a great success, saying: “I think this is one of the best pieces of regulation in a long time.

“I know there are a lot of issues with the quality of reporting in some cases and the lack of FCA prescribing, but the results speak for themselves.”

Over the past year, as FTAdviser has reported, fund houses such as Baillie Gifford, St James’s Place and Quilter have placed funds on watchlists and in some cases closed funds when they felt that they did not return any value.

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