Daniel Godfrey spoke to FN in the wake of an IA report published on August 9, in which the trade body concluded there was “zero evidence” that investor returns are damaged by hidden fees.
The study, conducted with the data provider Fitz Partners, also criticised “hysteria” surrounding the issue, stating that when transaction costs and ongoing charges were added together, asset managers still delivered benchmark-beating returns.
The publication of the study comes at a strategically delicate time for the UK’s investment industry. The Financial Conduct Authority is conducting a wide-ranging review of the sector that is looking at fee transparency and the value on offer to investors.
Godfrey, who was forced out of the IA in October 2015 amid a split on the buyside over how to deal with regulation and legislation, said he had been “surprised” by the trade body’s tone in delivering the findings of its report.
He said the IA risked making its “job harder with the very people they most need to convince”. Godfrey has since joined the FCA on a short-term contract and is advising its asset management policy unit.
The regulator is expected to publish an interim report on the findings from its asset management review in September.
The IA’s current stance is reminiscent of the period prior to the appointment of Godfrey in 2012, when the lobby group was firm in its denial that hidden fees and trading costs were damaging to asset managers’ clients.
The trade body is in the process of developing a disclosure code for the standardised reporting of charges, including implicit costs, which Godfrey said was a sign that “transparency is clearly not there yet”. He added: “So to label anyone who thinks there are hidden costs as being hysterical will just make some very sensible people feel that the IA is calling them (and treating them like) idiots.”
A spokesman for the IA said: “It’s time to put the record straight, there are not vast hidden fees lurking in funds – in fact they have outperformed.
“This is not about dismissing work improving transparency for the end investor, it is about furthering it so we can have a real debate based on facts not unsubstantiated claims.”
During his time in charge of the IA, Godfrey argued that the buyside needed to get ahead of the curve on issues such as fee transparency, even though some members questioned whether it was the mandate of a trade body to adopt this stance. Godfrey was a backer of the unbundling of research costs from dealing commissions – the trading costs paid by investors that have historically been used by asset managers to pay for research.
Godfrey said: “There manifestly are hidden costs in funds. Even the annual report won’t tell you how much ‘free’ research the manager received from the dealing commissions your fund paid to investment banks.”
He added: “I hope the IA will clarify its remarks and make it clear that you don’t have to be in the grip of an irrational hysteria to believe that there are hidden costs in investment management. Otherwise they risk just making their job harder with the very people they most need to convince.”
The report, which was based on equity fund data sourced between 2012 and 2015, has also been criticised by the Transparency Task Force, on which Godfrey sits as an ambassador. Its co-founder Andy Agathangelou wrote on August 10 that the IA’s position was “needlessly provocative”.
Meanwhile, Gina Miller, partner at wealth manager SCM Direct, who also runs the True and Fair campaign for better disclosure on fees, described the report as “amateurish”.
But the IA spokesman said the trade body’s report offered “factual, empirical evidence of real outcomes and the investor experience net of all costs and charges”.
Additional reporting by Liz Pfeuti