News that Standard Life Investments (SLI) has decided to raise annual management charges (AMCs) on seven of their retail investment funds is disappointing in an environment where investors are demanding lower fund charges.
SLI plans to increase the AMCs on seven of their retail investment funds in November this year, in order to ensure their charges “remain competitive within the market”.
It will see the funds, which include the popular Standard Life Investments UK Smaller Companies which is managed by Harry Nimmo, have their annual charges increased by 0.05%.
Institutional investors will also experience a similar price increase.
There are three elements of annual charges to consider when investing money.
The AMC levied by the fund manager is one of these elements and typically makes up the largest part of what an investor pays each year.
Investors also pay for annual platform costs, which are the administration charges paid to facilitate the investment of money, and annual advice charges.
When considering the AMC levied by a fund manager, it is important to understand whether this includes platform and advice charges, or not.
From a typical 1.5% AMC on an actively managed fund, an investor would expect to pay 0.25% for annual platform costs and 0.5% for annual advice costs.
Where an investor is not receiving ongoing advice, they should ensure they are not paying for this ongoing service.
In order to compare like with like, it is important to consider the ‘net’ cost of an investment fund before the cost of platform administration and advice is added to the total annual charge.
The decision from Standard Life Investments to increase the annual charges on these funds comes at a time when investors are seeking greater levels of transparency and competitive costs to ensure their funds are not eroded in a lower return environment.
According to research published by Pensions Management as a result of the announcement, three of the seven SLI funds were already charging above the industry average for their respective sectors.
Two of the seven funds will now cost investors more than average.
Cost is an important consideration for investors and is one of the factors we incorporate within our fund selection process.
