Woodford takes a stand on overcharging funds

Fund management commentators have welcomed Neil Woodford's remarks that too many active managers overcharge investors.

In an interview with the BBC's Today programme on Friday, ex-Invesco Perpetual star Neil Woodford claimed that a number of fund managers are charging investors for active management when in fact they are copying market indices, such as the FTSE 100 or FTSE 250.

"The industry has overcharged in many aspects. It's quite clear, in the banking industry and my own industry, that too often, the industry has been charging active fees for index performance or worse," he says.

However, the manager adds that private investors are increasingly becoming wise to this practice which should drive a sea-change in the industry.

A fairer deal for investors

"Retail clients in particular are waking up to the high charges that we've seen in the industry and I think, with some support from the regulator, we're going to see those charges come down," he claims.

At the launch of Woodford's new fund, CF Woodford UK Equity Income, in June the manager made a point of being transparent about the fund's charging structure, claiming that the fund would "absorb its administrative expenses."

This effectively means that the fund's annual management charge is the same as the ongoing charge, which currently stands at around 0.75% for retail investors, although this varies from between fund platforms.

Gina Miller, co-founder of SCM Private, who spearheads the True and Fair campaign aimed at raising awareness of fees and charges within the fund management industry, welcomed Woodford's comments.

"It is fantastic to see other fund managers, like Neil Woodford, joining the growing chorus of voices demanding change and a fairer deal for UK savers and investors.

"Hidden fees erode savers returns and penalise them through pernicious costs that are deliberately obscured and misleading. It is time this shoddy practice ended and the more people prepared to stand up and call time on this rip-off, the better," she says.

Michael John Lytle, chief development officer at exchange traded fund provider Source added that in fact very few active managers outperform their benchmarks, meaning that in some instances investors may be better served by cheaper passive vehicles.

"Active management can add value, but most investors only want to invest in the top-quartile funds, leaving three quarters of the fund management industry looking unattractive.

"In most circumstances it is because the active fund manager has failed to consistently outperform their benchmark. Active managers charge for that alpha, so when you cannot find an active manager who can outperform, then an investor should buy a passive fund and save on the higher fees," he says.

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