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Investment companies and pension schemes already under pressure over hidden costs

Trade unions are preparing to pile pressure on pension funds and asset managers around the world over investment costs and fee transparency, as concerns mount that hidden charges are eating up returns. The Global Unions Committee on Workers’ Capital (CWC), which brings together officials from 25 countries, said it plans to roll out “a global initiative on asset management fee transparency”.

Fund companies have come under pressure to disclose the true cost of investments to their clients. A study last year found that pension savers in the UK are routinely hit with more than 100 charges, many of them hidden, that potentially consume more than a third of the value of their funds over their lifetime.Hugues Létourneau, senior programme officer at the CWC, said the fee initiative is likely to be one of the CWC’s priorities in 2018.

The CWC is made up of more than 200 members globally, including senior figures from the International Trade Union Confederation, which represents 181m workers across 163 countries, and the International Transport Workers’ Federation, which has a combined membership of 16m employees. While final details of the initiative have yet to be agreed, it is understood the unions will examine countries where asset managers are under pressure to reveal hidden charges, with a view to helping members push for similar changes in their home markets.

Several countries, including the Netherlands, have introduced systems aimed at ensuring investors have more clarity over the costs they are paying in recent years. Dutch pension funds have to report all costs in their annual reports, including implicit and explicit investment costs together with estimates of transaction costs.

From January, asset managers overseeing money on behalf of millions of workplace pension savers in the UK will be forced to disclose hidden charges under new rules from the Financial Conduct Authority, the regulator. The UK is also in the process of introducing a comprehensive new framework for the reporting of investment fees across a wide variety of asset classes.

Colin Meech, national officer at Unison, the UK’s second-largest union, which has 1.3m members, said workers’ representatives globally were becoming increasingly concerned about asset management fees, which affect net returns and the funding levels of pension pots.

“Pension fund costs and transparency is a major issue,” he added.In the US, a study released by the American Federation of Teachers in May urged pension funds and politicians to “challenge the status quo when it comes to fees” in the investment industry. According to its research, excessive fees paid to alternative investment managers are a significant contributor to funding shortfalls in retirement pots.

Mr Meech said it was important that pension funds understood the true cost they were paying in asset management fees, particularly because many were struggling with large deficits. He argued pension funds would often be better off negotiating to reduce fees as a solution to shortfalls, rather than cutting employee benefits. “We want to have some common standards [for fee disclosures] across the globe,” he added.

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