Tracker investors still wasting money on high fees

Analysis by Fidelity International, UK ISA provider, shows that retail investors in UK tracker funds could save themselves around £45 million in total charges each year if other providers followed Fidelity's example of lowering fees.

Back in September 2005, Fidelity International cut the annual management charge on its UK index tracker fund (Fidelity Money Builder UK Index Fund) to just 0.1 per cent to offer retail savers the cheapest access to the UK stock market. This was a tenth of the charge imposed by many of the large tracker fund groups and lowered the total cost of the fund (the Total Expense Ratio or TER) to just 0.27 per cent.

Gary Shaughnessy, Managing Director of DC and Retail business, at Fidelity International comments: "Savers choose index funds because they believe they are simple and low-cost but we have believed for some time now that too many are overpaying for their funds.

"We welcome the renewed public interest in low-cost trackers following recent competitor activity. However, we believe that more should be done for retail investors who may not qualify for some of these products coming to market, due to their six figure minimum investment levels, and who are still paying too high a price year in year out for their existing funds. We believe tracker funds should be good value and accessible to all investors - not just the wealthy."

The analysis by Fidelity highlights the fact that three-quarters of UK tracker providers are still imposing total costs of 0.5 per cent or more on their funds which shadow the movement of indexes such as the FTSE All-Share or the FTSE 100. These tracker funds have a combined value of almost £10 billion. Fidelity's analysis also reveals that a handful of UK tracker funds still have front-end charges, in some instances of up to 5.50 per cent.

"Index funds don't add value in the way active funds do and should be bought primarily on price, tracking error and the commitment of the company running them. There is no reason for fund companies to charge upwards of 0.5 per cent on these funds, let alone levy an initial charge as well" concludes Mr Shaughnessy.