MiFID forces disclosure of UK funds' hidden costs

Investors in 13 of the UK's top 20 bestselling funds of 2016 paid as much as 85% and an average 30% more in fees than had previously been disclosed to them, according to pension and investment consultancy, the Lang Cat.

The hidden charges were revealed under the disclosure requirements of the updated Markets in Financial Instruments Directive (MiFID II).

From the start of 2018, MiFID II requires investment managers to reveal additional transaction costs, such as stockbrokers' dealing commissions, which are charged to their funds. In the past, these costs were not typically included in the ongoing charges figure (OCF) that Ucits funds are required to disclose to investors.

Seven of the top 20 funds disclosed their transaction costs as zero. It is unclear whether these funds have no transaction costs or whether the costs are being met from company profits rather than borne by the fund.

Mike Barrett, consulting director at the Lang Cat, said: “As recently as 2016, the Investment Association was calling these additional charges ‘the Loch Ness Monster of investments’. It turns out that Nessie is alive and well, and charging tourists a third more for a photo than they expected.”

He added: “From an investor’s point of view, this is likely to be a real turn-off. This feeling of grubbiness intensifies when you remember just how hard the industry has kicked against being made to step up to the plate and disclose these charges.”

Fundscape, a research house that analyses the UK industry, provided the list of the top 20 bestselling funds. FE Analytics provided data on costs.

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