Miller: IMA should be renamed ‘Investor Misinformation Association’

SCM Private’s co-founder Alan Miller (pictured) believes the Investment Management Association should be re-labelled the ‘Investor Misinformation Association’ after it denied there are hidden costs in active fund management.

Miller, who recently launched a campaign for transparency over fees, said the IMA is relentlessly attempting to ‘defend the indefensible’ by attacking the idea there are hidden costs in funds.

According to Miller such hidden expenses include dealing costs, which amount to around £18.5 billion a year across the entire investment industry. Miller said investors have to play ‘hide and seek’ by turning countless pages in a multitude of documents to find all costs associated with their investments.

However, chief executive of the IMA Richard Saunders conceded on Radio 4’s Money Box how hard it is for investors to see all the costs such as dealing charges.

He said: ‘They are in the report and accounts which is a document which I completely agree that most investors would never see. They probably don’t even know it exists. I think there is a good case for making those much more prominently available to investors.’

However, Miller said in defence of its members, the IMA recently published statistics showing that because the average active fund manager has only underperformed their benchmark by 0.8% a year over the last 10 years, this is further evidence of no hidden costs.

Miller said: ‘Picking a 10 year period was sneaky and misleading because few consistent, badly under-performing funds normally survive 10 years without being culled. 

‘They then tend to be either closed or merged with another more successful fund and hey presto their poor performance disappears from IMA statistics.’

However, the IMA said these statistics apply to tracker funds, not active funds. It said its other statistics show that because the difference between the net fund return and the benchmark return was on average significantly less than the TER, transaction costs were more than covered by the investment returns from active management.

In response to Miller's comments, Saunders said: ‘There are no hidden costs in fund management.  The total expense ratio – ongoing charges as it will eventually become – is a measure arrived at after exhaustive study and consultation by European regulators.

‘As the IMA’s analysis of net performance shows, it gives investors complete clarity about the costs of investing in a fund.’