Unfortunately, fund management companies around the world have traditionally made it very hard to work it out how much you are paying in fees.
Statistician Chris Sier decided to look into the cost of investing when he moved from a job as a police officer to work in asset management in London.
So where does the money come from? Where does money evolve? And how does it fuel everything?
Chris states that he “reached the conclusion that it came from the consumer, and the consumer pays for everything. And that’s been my journey since then: it’s figuring out how much the consumer pays”.
Something that surprised Dr. Sier, as he started to investigate further, was quite how many layers of inter-mediation there are involved in asset management. Of course, every layer adds to the cost.
There are many things that a consumer won’t recognise.
They recognise a fund manager, or maybe if they don’t recognise the fund manager, they’ll recognise the platform or the distributor. Or in the pension fund world, they’ll recognise their pension fund provider. But they probably don’t know about things like custodians, brokers, transfer agents and all these many, many intermediaries that exist in the process.
Every layer of inter-mediation that sits in that journey takes some money.
Something that many investors don’t understand is how much of their returns are eaten up by the cost of trading. The more the fund manager trades, the more money you pay.
Most people tend to trade, and they trade upon the volatility of the price.
And you need to be aware that when you buy manager A versus manager B, that you’ll be paying more fees for one… and one might well have lower fees, because that’s their model.
Chris Sier is now working in several countries, trying to get to the bottom of how much investors are paying in fees.
He emphasises that until the total cost of investing becomes clear, investors are best advised to stick to low-cost funds with transparent fees and charges.