As part of the FCA’s drive to make investment charges more transparent, all fund managers, providers and financial advisers are required to disclose charges in an explicit, clear, fair and transparent way.
Historically, most items have a different price that they buy good in and sell you those goods to cover any margins. If it is foreign exchange, you have a price that you buy in at and a price that you sell at. A bid/offer spread. This spread covers dealing costs, stamp duty on shares trades or property trades, legal costs etc. Back in the 70s, 80s and 90s, most funds had a bid/offer spread. To try and market investment products with little or no apparent upfront charges, these would be hidden by allocation rates or more so today by the value of the investment fund being adjusted to just a ‘bid to bid’ unit price but the assets inside the fund and therefore your fund value would be adjusted marginally down to appear as no cost or the provider would absorb those costs and cover it by other means of charging.
This is changing again now in a ‘post covid-10’ world. We have seen a number of investment funds, pension funds, unit trusts and OEICS (open ended investment companies) now bringing back the bid/offer spread to reflect the real cost of investing but it is being hidden away in “additional expenses” in fact sheets for then to still be able to print that there is ‘no initial charge’, ‘no entry charge’ etc.
For one recent fund that we have dealt with, the fund fact sheet disclosed no initial charge and a 0.75% annual fund management charge. Yet, when we looked at the small print, we found ‘additional expenses’ of a bid/offer spread of 6.1%.
For example, in the above case, the provider justified this as the costs involved for the purchase of the property assets in the fund and of course the sale of the same assets as the fund buys and sells shares and physical property everyday. It would appear to us that fund managers are now trying to act as if they are property agents/managers and charging via ‘additional expenses’ for the real costs to buy/sell/manage/legal/custodian fees etc.
Keep an eye out for ‘Dual Pricing’ or if we look after your affairs, know that we are looking out for you.