For years people like me have been small voices in the wilderness telling anyone who’d listen how the active fund management industry has been fleecing them bare.

I have gone as far as to state that active fund management is, in terms of money removed from client’s bank accounts for nothing in return, the biggest mis-selling scandal this country has ever seen. It dwarfs PPI and Pension mis-selling combined – partly because of the sums involved but mostly because of the length of time it has been allowed to continue.

Now, the FCA has released its Asset Management Market Study Interim Report and, while it’s too early to say the regulator has taken the bull by the horns, we may conclude that it has at least gone through the gate into the bull’s field.

This report makes a number of damning observations about the shameful performance of the UK investment management business but, for the purpose of this blog I am going to open with this graph.


This is showing is the effect of the charges on a specified investment return over 20 years.
The red and yellow lines (so close together they are practically the same) are what you might expect from a low cost passive fund. The purple line is the return based on the charges of a typical actively managed fund – well, the charges they tell you about anyway. Add in the ones they don’t mention and now you’re looking at the blue line as a return. As the FCA report estimates, the passive investor is looking at 44.4% more.

Of course, that’s all very well if the investment returns of the passive and active funds were identical but, as we all know, two funds will deliver different returns. So by paying a bit extra, I get the benefit of the fund manager’s expertise and that will give me better performance and outweigh those higher charges, right?

Well, not according to the FCA. To quote their report: “Overall, our evidence suggests that actively managed investments do not outperform their benchmark after costs. Funds which are available to retail investors underperform their benchmarks after costs”.

So, there you are – pay more, get less.

But Ivor, you cry, surely you have over-egged the pudding with your fallacious remarks about ‘biggest mis-selling scandal EVER’. Well, stay with me and I’ll explain why I say that.

The FCA report cites these statistics:

  • the UK asset management industry is managing over one TRILLION pounds of retail investors money
  • 23% of those assets are invested passively
  • the average active fund annual charge is 0.90% and for passives it’s 0.15%

So, calculators out then. That’s £770,000,000,000 of money which is paying, on average, 0.75% more than it needs to – or, put another way £5,775,000,000. Now if, as the FCA suggest, actively managed funds are not giving retail investors better performance, that’s their pockets being picked to the tune of nearly six billion poundsEVERY SINGLE YEAR!

The FCA report is only an interim report. We have to wait until next year for the final document but, already it is talking about some interesting ‘remedial measures’ that it might consider.

It remains to be seen whether they carry this through (or whether lobbying from a multi-trillion pound industry sees them halted in their tracks) but, if nothing else, it’s a start.

If you want to see the full report (or if you just think I’ve made some of this up) you can find it here: