The Financial Services Consumer Panel has condemned the lack of transparency in aspects such as the annual management charge, saying retail customers do not know what costs they will face when they invest.
The organisation's research found the AMC may be as little as a quarter of the true costs, as many of the charges are deducted directly from the fund and remain hidden.

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Sue Lewis, chair of the panel, said: "Investment managers in the UK have stewardship of £2.4 trillion of retail consumers' money, including through pension funds. Poor disclosure, weak governance and multiple conflicts of interest mean that competition in the investment market is not working in the best interests of consumers.

"The problems our research has identified are long standing, and need fixing urgently. People are depending more and more on investment to deliver their long-term financial wellbeing, especially in the light of the recent pension reforms.

"It is completely unacceptable that consumers do not know what firms are charging them to manage money on their behalf, and cannot compare different offers. While we recognise that the industry is working to improve disclosure, this does not go far enough."

The panel published a discussion paper this morning on the costs and charges consumers bear when investing in retail funds, whether directly or through pensions, stocks and shares ISAs, or insurance 'wrappers'.

Based on the independent research, the panel proposed:

· Investment managers could be required to quote a single and comprehensive annual charge, including estimates of forward costs like transaction charges. All other costs, currently deducted by the investment manager directly from the fund, would be borne by the investment management firm. This would enable consumers to compare different firms' charges, and also act as a powerful incentive on firms to improve efficiency.

· Investment managers could have a strengthened legal obligation to put the interests of their customers first, the fiduciary duty. The current regulatory requirement to 'treat customers fairly' does not tackle the multiple conflicts of interest in the investment industry, it said.

The Panel will host a roundtable with stakeholders early in the New Year to discuss the findings of the research and suggested solutions.

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