INVESTMENT EXTRA: Finding a fair fee for newest funds

By JAMES CONEY FOR THE DAILY MAIL
Updated:

New fund management company TCF Investments launches next month with the
promise of delivering clear, low charges to savers. It is scheduled to launch four
funds next month, with total annual running charges as low as 0.6pc.

Traditional funds of this kind can levy fees as high as 2.5pc. The launch follows a series of tough campaigns, including one by the Daily Mail, critical of the fees and charges fund management firms squeeze from customers.

Man clutching money to his chest

Tough campaigns: Fees and charges that fund management firms squeeze from customers have been criticised

Investment charges can strip thousands from savings. A 2pc charge for someone who saved £5,000 a year for 30 years would take a £76,321 chunk from their
savings, giving them a final pot of £285,534. 

But the cumulative effect to your total savings is even greater as savers miss out on compounded growth – for example, someone who paid charges of 0.25pc would make £398,970.

TCF, whose name is taken from the regulators’ ‘treating customers fairly’ regime, will not have initial charges, switching fees, performance fees, exit fees or commission.

The funds will be based on levels of risk investors are willing to take. the funds are called Defensive, Cautious, Balanced and Long-term Growth, and have an exposure to equities of 20pc, 40pc, 60pc and 80pc respectively.

And each will have progressively greater exposure to high-risk assets. So as a guide, the 20pc fund will have 12pc invested in the UK, 4pc in the US, and 4pc in Europe. By turn the 80pc fund will have around 32pc in the UK, 15pc in the US, 11pc in Europe, 10pc in emerging markets, 6pc in Japan and 6pc in the Far East.

Each fund also has the prospect of being invested in commercial property, bonds and private equity.

The reason costs can be kept low is because these investments will be fund of funds – comprised of a range of equity funds from rival investment houses.

And they will be passively managed, which means managers will not be constantly chopping and changing where the fund’s assets are held.

Ben Yearsley, from investment experts Hargreaves Lansdown, said: ‘the problem I potentially have is that why would you pay for a passive fund when you can get a tracker that is much cheaper?

‘But then it might still be better to pay that little bit more for an active manager that gives you the chance of beating what the FTSE All-Share is doing.’

TCF is the brainchild of former Credit Suisse Asset Management David Norman, and Insight Investment chief executive Gary Mairs. they are joint chief
executives of the new company.

They believe their funds will give investors better piece of mind than some trackers or exchange-traded funds (ETFs).

Norman said: ‘As a saver you are relying on that firm doing its due diligence, but we don’t think that a lot of these ETFs have got the resources to be able to do this effectively. With our funds we will have fully researched the underlying investments.’

It is with its transparent charging that TCF is aiming to set itself apart from the rest of the industry.

Total expense ratio (TER), or annual running cost, of the funds will start at 0.8pc. But as each one grows in size the TER will fall – so once they hold more than £1.5bn investments the charge will be just 0.6pc.

This is not as cheap as a basic FTSE tracker fund, such as the 0.25pc charged by HSBC, but it is substantially lower than many standard investment funds, and particularly fund of funds. these are normally steeped in high charges, as savers are essentially paying a fee to each of the fund managers held in the investment.

Norman added: ‘the bigger we get, the more savers can benefit from the economies of scale we would receive. We see no reason why we shouldn’t pass this saving on to the consumer.’

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