Wealth Managers: Understanding how much you are paying


William Ladenburg of Close Brothers Asset Management explains financial transparency

When speaking to investment managers or fund managers about fees, you will more than likely be quoted the Annual Management Charge (AMC). Without being too controversial, it is one of the more useless terms that is bandied around the world of investing as it fails to take account of a myriad of other expenses that may act as a drag on performance. Examples of hidden fees can be shared registration fees, fees payable to auditors, legal fees, and custodian fees. I would therefore always recommend finding the Total Expense Ratio (TER) of a fund or an investment management service.

It will include all of these ‘other’ fees and will provide the client with a much more accurate measure of the drag on performance rather than just using the AMC alone. While it is mandatory for all investment companies in the United States to show the TER clearly to all investors, companies in the UK tend to give more emphasis to the AMC and therefore fail to give an investor the full story on fees.

Calculating the TER is extremely simple in principal:

Total Expense Ratio = Total Fund Costs / Total Fund Assets

However, trying to get the full costs from the investment manager could prove to be more difficult but in my experience, if you ask for it, you will be given it – by asking this question, you will appear savvy enough for them not to pull the wool over your eyes!