Ripped-Off Investment Britain

Imaging sitting with friends on a relaxed night out and asking if any of them want to keep working until they're 70: there will be a purveying glumness and descent into depression at the thought. However, this is the reality facing many people today in the UK, with statistics showing that less than half the population (48%) are actively saving for retirement.

Imaging sitting with friends on a relaxed night out and asking if any of them want to keep working until they're 70: there will be a purveying glumness and descent into depression at the thought.

However, this is the reality facing many people today in the UK, with statistics showing that less than half the population (48%) are actively saving for retirement by paying into a pension (Department of Work and Pensions Survey), and a quarter of Brits are relying on winning the lottery to improve their personal finances (YouGov survey commissioned by the Institute for Financial Planning (IFP) and NS&I Planning Week, 2009).

There is one way out of this unpleasant conundrum and that's to save more. But this is a tough ask when there is deep-seated mistrust of financial institutions and when we are seeing near zero-wage growth and incomes are being squeezed by rising bills and inflation.

However for many, hope appears to be on the horizon. Despite the recent dip, economic growth and stock market performance have been strong so far this year, so it should follow that those with pension funds and retirement savings can expect to see healthy returns to help achieve their retirement dreams. Right?

Sadly, this may not be the case. UK consumers are the victims of a great rip-off perpetrated by the industry in which I work, the UK investment and pensions sector.

Many people glaze over at the mention of fund management but bear with me.

Here's the picture - you decide to behave responsibly by saving and investing and you hope your nest-egg will grow by say 5% a year but actually inflation is taking around 2.5% off that growth and the fund manager is taking 2% or more in fees and charges; not to mention adviser or platform fees.

The result is that your hard earned money could be producing as little as 0.5% or less in real terms. At that rate when would retiring be an option?

But this blog is not a personal finance story; it's a story of a massive consumer rip-off conducted by an industry that' has lost its moral compass.

Unlike any other industry, the UK investment industry denies its consumers the basic right of knowing the full total cost of buying the product they are purchasing (in this case an investment or pensions fund) before they part with their money. Instead the cost is shrouded in half-truths, convoluted language, and misleading numbers and marketing.

Even though research from its own regulatory body (the then Financial Services Authority, FSA) conducted as long ago as 2000 found that on average only 50% of fees were being disclosed prior to purchase, the industry continues to refuse to disclose the full cost of fees and charges to its consumers.

In the days of high-growth, fund managers could justify higher fees because the good ones made money hand over fist for investors.

That isn't the case today. Finding a fund manager who can deliver better returns than you'd get from a solid low cost fund is like searching for a needle in a haystack.

It is widely acknowledged that we are likely to see lower growth for investments and pensions in the future, so fees suddenly become more critical, and their impact on investment returns (i.e. when you can retire), fundamental.

This is rip-off Britain on a colossal scale. No other industry would expect consumers to buy a product without knowing the price they pay before they purchase. Yet that is precisely what happens in the pensions and investments sector.

The True and Fair Campaign we launched 18 months ago has been calling for an end to these anti-consumer practices and for a new era of transparency. Put simply we want consumers to know 100% of the likely TOTAL cost of the fees and charges they pay, up front, before they put their hard earned cash into a pension or investment product. The other call is for 100% transparency on holdings so savers and investors know exactly where their money is being put; something that has happened online in the US since 2004.

For 18 months the industry has procrastinated and ridiculed us, and now acknowledges that action is needed to end hidden fees - but they are still failing to announce any concrete measures that go beyond mere rhetoric.

I know it seems incredible that a multi-billion pound industry is allowed to behave in such an anti-consumer manner but ask yourself a simple question: do you know how much your pension costs you? Not just the annual management fee but all the transaction costs and trading fees, dealing costs, administration costs, performance fees, platform charges and financial adviser fees? My guess is that your answer would be no.

In the face of this vacuum of information and the on-going excuses being fielded by the industry as to why they cannot offer consumers a 'ticket price', we have launched an investment calculator and comparison tool to showcase the full costs and fees for UK investment products, which underpin many pensions and retirement planning portfolios - www.trueandfaircalculator.com.

Even though this can be a confusing topic, we have tried to make it simple and understandable, by producing a true and fair total cost of investing in one number, in pounds and pence, as well as showing the impact of this on investments.

Will the calculator help you stop work before you're 70? Maybe. What it will definitely do is to empower you to understand how much you pay for investment funds and compare this cost against growth of the fund. The hope is that for consumers the True and Fair Calculator will drive better decision making, more realistic expectations and give consumers the tools to challenge the numbers presented to them by the 'experts' . From an industry perspective

Some funds are excellent and deliver strong, market-beating growth for the investment. Some are dire and will erode your savings faster than a rip-tide.

However we hope this Calculator marks the beginning of the end to this huge rip-off and ensures more of us can save enough to retire when we want. It's a bold claim, but big change starts with a single step.

By Gina Miller, Founder, the True and Fair Campaign and trueandfaircalculator.com

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