It pays to know how much you’re paying in fund management fees

Recent consumer research carried out by the Financial Conduct Authority (FCA) found that people were unaware how much they were paying for their financial advice *. And many were judging whether the financial advice was good value for money based purely on the performance of the fund!

While fund performance is of course a key indicator, not considering the associated costs for how your fund is managed is a huge oversight.

According to the FCA, these associated costs range from 0.4% to 2% per annum* and can have a significant impact on the potential growth of your investments in two very important ways.

  1. For every pound of return you make, the fund manager is taking a percentage cut, which means your returns are reduced.
  2. It could therefore be that you are investing in a fund and paying 2% per annum for the management, while if you were with a different fund manager your money could be invested in a similar fund but with a lower annual fee of 0.40%. a potential saving each year of 1.6%.

Ultimately, the lower the annual cost the more that you keep. How often do you hear advisers telling you that? But why does this matter? For every pound that you pay in fund managements costs, this comes directly out of your return. Which means reduced gains and worsening any potential losses.

Like compound interest, costs compound, but in reverse. Every pound in charges means not only do you lose that pound, it’s also the returns it would have earned had it remained invested in your fund. Compounding, as we know, accelerates exponentially. Over time, the difference between a low-and a high cost portfolio can have a major impact on your returns. So why would you overpay for fund management?

Vanguard have produced a chart below which outlines the long term impact of annual fund management costs.

I know that it is hard for you to compare costs versus the service that they you receive. There are also no search comparisons tools readily available to help you with your decision making. We as a profession are trying to be clearer as to what fees you pay and for what agreed services. We can do more.

The most important things are to understanding that there are costs involved when you invest money and knowing what the costs are. So don’t be afraid to speak up and ask exactly what it is you are being charged when you invest your money.

*based on evidence from the FCA consumer research on the Evaluation of the Impact of the Retail Distribution Review and the Financial Advice Market Review December 2020.


The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.

This article is distributed for information purposes and should not be considered investment or other advice or an offer of any product / security for sale. This article contains the opinions of the authors but not necessarily the firm and does not represent a recommendation of any particular security, strategy or product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.

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