Transaction fees can reach 500% of ongoing charge figure

Fund transaction fees can be much higher than their quoted ongoing charge figures (OCFs) suggest, research has found.

A study by fund research company, Fitz Partners, found the highest OCF increases when transaction or trading fees as a percentage of assets were added would be for index trackers, which would increase by an average of 29%.The finding calls into question once again the efficacy of transparency in quoted charges.

The OCF has become a widely used way for firms to report fund costs to customers – but it does not include the transaction costs generated by portfolio managers’ buy and sell orders.

The study calculated transaction fees from audited fund accounts and measured the effect they would have on funds’ OCFs, should trading and transaction costs be aggregated in one single measure.

For ETFs it would be 26% (though some were as high as 500%) and 21% for an equity fund.

The growth in smart beta ETFs is one of the reasons for the overall increase in trading costs for ETFs, the research found, and index tracker funds remained, on average, better value after trading costs when comparing with ETFs.

Hugues Gillibert, chief executive of Fitz Partners, said that in the last few years most funds including ETFs had lowered their OCFs quoted to investors and the implementation of the revised Markets in Financial Instruments Directive, known as MiFID II, would make trading costs more transparent and allow investors to refine their investment choice.

He added: “The industry will benefit from further transparency on trading costs and it would be best disclosed at the point of investment alongside the fund’s OCF and subscription charges as well as platform fees.”

©2017 funds europe

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