Why is so much money in high charging trackers?

Bestinvest’s list of what we might call uncomfortably high charging tracker funds representing more than £6bn of assets demonstrates that at least some things change in financial services. Something that might have looked like reasonable value for money in 1999, or at least could be presented as such in a clever marketing campaign, certainly does not look cheap now.
No-one would dare run an advertising campaign suggesting “low charges of just one per cent” in the current cold climate, yet that was the tone and the content of advertising on London Underground and the nation’s billboards a decade and half ago which is presumably how those assets were gathered in the first place.
The argument that active fund management was too expensive in comparison to one per cent charging trackers sounds totally
anachronistic, given that some of today’s fierce arguments, which tend to revolve around matters of basis points, hidden or not.
It is probably instructive that the largest fund in Bestinvest’s list is Virgin’s £2.4 billion Virgin UK Index Tracking, charging 1 per cent. It was quite a marketing campaign and IFAs will remember that Mr Branson’s marketing campaigns came along with some tough talking about them as well as active fund managers.
It may also be no surprise that the steepest charge is levied by the £366 million Halifax UK FTSE All Share Index Tracker C, with a remarkable 1.5 per cent AMC.
I can’t remember if this fund was advertised widely, but it speaks volumes about once mighty bank distribution.
The list is instructive for another reason. It is more than of passing historical interest because this money belongs to today’s investors even if it formed part of an Isa or maybe even Pep allowance from very many years ago.
We should ask why is this money so sticky when a host of very cheap alternatives whether rival tracker mutual funds or ETFs are now available and marketed far and wide.
One even has to wonder whether even as self-assured a direct marketing operation as Bestinvest will provoke many of these investors to switch though the firm should get huge credit for raising the issue again.
Unfortunately the people invested here may not get the mailer nor read the money pages.   That is even with as clear and easily understood a message as one that says you may be paying more than double what you have to.
It also begs the question of whether many investors are still dutifully paying in to these funds? What is also concerning is that these tracker funds are readily identified as not great value but they may be representative of a lot more poor value investment management stuck on legacy books across financial services.
One would hope that any IFA client would have been switched a long time ago and even where some of their money is stuck in an old style policy protected by penalties, they at least know it is stuck and manage their other investments around it.
But the fact that this money is in trackers on a presumably voluntary basis suggests that some parts of the population are being seriously neglected when it comes to advice and information.
Finally are we entitled to ask whether the firms that are still creating and selling new funds might consider bringing down those charges on these old funds more into line with the new ones? People buy vintage cars though not for the fuel economy or motorway driving. People might even buy vintage investment trusts if they are still performing, but what exactly is the purpose of a vintage tracker?

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  • Bones1849

    It’s sticky simply because the vast majority of investors/depositors are lazy and can’t be bothered. You could also why 80% of uk liquid wealth be held in cash ? rather than being invested more effectively.

    Getting an adviser, however, is no longer the solution it might once have been. With so many now charging 1% pa ( to cover increased regulatory costs) and operating via the more expensive wrap or platform ( add another 0,5% pa) the poor investor who does take advice might be simply jumping out of the frying pan into the fire ?