The level of hidden charges in investment management highlighted through the disclosure requirements of MiFID II has been blasted by investment consultancy, the lang cat.

Effective from the start of 2018, the EU-driven MiFID II requires investment managers to disclose additional transaction costs that are charged to their funds, on top of the established ongoing charging fund (OCF) figure.

Across the top 20 selling funds of 2016, investors in 13 funds are shown to be paying on average 30%, and as much as 85%, more in additional transaction fees than had previously been disclosed to them.

Seven of the top 20 funds disclose their transaction costs as zero; it is unclear yet whether these funds genuinely have no transaction costs or whether they are being met from company profits rather than borne by the fund.

Mike Barrett, consulting director at the lang cat, said: “Most advisers have always known there was more to fund costs than the OCF; however in the absence of formal disclosure this was just speculation, and they had to work with what the fund groups told them. Numerous surveys over recent years have shown how people trust financial services at roughly the levels normally reserved for politicians and estate agents. And with fund groups now saying “Oh, sorry, when we said we were charging you x, we meant a figure over a third higher”, it’s not hard to understand why.

“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. This is not anything radical – all they are being asked to do is to tell people what it costs to invest with them. It’s taken EU regulation to get this out in the open, rather than transparency being the default position. Now we’ve come this far, we also need those firms who are disclosing a zero cost to explain the basis of their assumptions.”

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