Well-known fund manager, Neil Woodford, said on an influential BBC radio programme this morning that fund managers too often overcharge customers for active funds.
He told BBC Radio 4’s The Today Programme, which has around seven million listeners a week, that fund managers “overcharged in many aspects” and that investors were paying “for index performance or worse”.
“Choosing my words carefully, I think the industry has overcharged in many aspects. I mean, it is quite clear in the banking industry – and indeed in my own industry – that too often the industry has been guilty ofcharging active fees for index performance or worse,” he said.
Woodford described the pressure on fees as “inexorable”, saying: “I think retail clients in particular are waking up to the high charges that we’ve seen in this industry and I think with some support from the regulator we are going to see those charges come down.”
Woodford said a long-term investment focus is needed to exploit inefficiencies in the market – an approach he says that he takes. But constraints in the fund management industry were responsible for other managers avoiding this approach.
“They are constrained by all sorts of incentives around the corporate risk of their employers, their remuneration structures; all sorts of things constrain fund managers’ desire to employ long-term strategies,” he said.
In response to the BBC interview, Daniel Godfrey, chief executive of the Investment Management Association (IMA), says: “The IMA recognises that improvements in simple disclosure of costs and accountability are needed and is committed to a number of measures that will deliver that.”
A new disclosure that requires all costs to be reported in a “comprehensive and simple pounds and pence per unit figure every year” will be effective next Spring, he says.
“We have further work in progress to deliver similar simple transparency covering the impact of the indirect transaction costs incurred by funds.
“This all goes beyond any regulatory requirement and is designed to give consumers what they need to make better decisions and informed choices.”
Elsewhere in the radio programme, which is believed to be Woodford’s first broadcast interview, the influential fund manager said he did not approve of the idea of a retail energy price freeze, which Ed Miliband, leader of the UK’s opposition Labour Party, said in the party’s annual conference this week that his government would do.
Commenting on the companies Centrica and SSE, which Woodford owns, he said: “My judgement is that they are not earning disproportionate profitability, that they are not ripping off their customers, but I’m equally very well aware that they aren’t doing a very good job of communicating that, or indeed of looking after their customers, so they need to improve on that front.”
The tax on tobacco companies would “bad economics”, he also said, because the industry’s contribution in total tax revenue is disproportionately great in comparison to the estimated cost of tobacco consumption to the National Health Service.
Woodford ended by saying that his long-term approach to investment is not only relevant for the fund management industry, but to broader society.
“I think Western democracies are handicapped by their obsession with the short-term. The electoral cycle inevitably encourages short-term political views, which have important implications for the economy.”
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