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Newly launched fund manager slams chunky charges

Active funds charge a ‘management fee’ of about 1.5% of assets, this equates to tens of millions in fees for doing nothing

In the City, everybody talks their own book. There are no exceptions, so it’s hardly surprising that, having launched their own fund undercutting rivals on fees, ex-New Star fund manager Alan Miller and wife Gina continually bang on about fund management’s chunky charges.

It may be an obvious sales pitch, but it doesn’t make what they are saying wrong. On Tuesday their firm, SCM Private, threw some weight behind their argument by releasing a report that found 80% of funds that tweaked their fees between 2001 and 2011 gave themselves an increase.

In truth, the whole industry is well overdue some scrutiny. Active funds – which supposedly “actively” manage your money – tend to charge clients a “management fee” of around 1.5% of assets. With many funds holding billions, this equates to tens of millions each in fees, for which the fund managers must do almost nothing.

Still, fund managers often do decide to make a few trades and not merely to keep up appearances. They might as well, as they are playing the markets with other people’s money and might make more for themselves.

If the managers do increase your assets – a service that is above and beyond the call of duty – then another fee is incurred. This time your genius fund manager will be rewarded with, say, 0.5% of your fund, meaning a deposit of £1m that grows by 10% to £1.1m will actually see your investment increase by 7.8% before tax and other arcane charges (£1.1m: £16,500 management fee; £5,500 performance fee).

However, during the lean years, you still pay a management fee to the firm that loses you £100,000 – only you’re not allowed to charge a “non-performance” fee in return. The system doesn’t work like that and he’ll only get cross if you ask. Inexplicably, few ever seem to question these arrangements. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds