Business

Fund manager Neil Woodford says his industry overcharges

Neil Woodford Image copyright The Woodford Fund
Image caption Neil Woodford launched his own investment company in May this year

One of the country's most successful fund managers has criticised his industry for charging customers too much, and paying its managers too much.

Neil Woodford says fund managers often claim to be actively managing a fund, when in reality they are following the herd.

However, he says that wiser customers and stricter regulation will lead to lower fees in the future.

Mr Woodford set up his own fund in May and has £7bn under management.

In an interview with the BBC's Today programme, he said: "The industry has overcharged in many aspects. It's quite clear, in the banking industry and my own industry, that too often, the industry has been charging active fees for index performance or worse."

This means fund managers don't actively choose which stocks to invest in, but instead tend to follow a big index such as the FTSE 100.

"Retail clients in particular are waking up to the high charges that we've seen in the industry and I think, with some support from the regulator, we're going to see those charges come down," he said.

Daniel Godfrey, chief executive of the Investment Management Association (IMA) said: "The IMA recognises that improvements in simple disclosure of costs and accountability are needed and is committed to a number of measures that will deliver that.

"We have developed a new disclosure that requires all costs to be reported in a comprehensive and simple pounds and pence per unit figure every year. This will be effective next Spring.

"We have further work in progress to deliver similar simple transparency covering the impact of the indirect transaction costs incurred by funds. This all goes beyond any regulatory requirement and is designed to give consumers what they need to make better decisions and informed choices."

Dotcom boom

Neil Woodford is considered in the industry as one of the country's best performing fund managers. He puts that down to always taking a long-term view on his investments, arguing that most fund managers take a far too short-term approach.

"Fund managers are constrained by the fear that if they were to underperform the index for a three, six or 12 month period, their careers would be in jeopardy," he said.

As a result, Mr Woodford argues, they are reluctant to buck the trend or invest in start-ups.

One of the best-known examples of Mr Woodford's individual strategy was refusing to invest in the dotcom boom of the late 1990s and early 2000s.

He says he came under a lot of pressure to invest in tech companies with huge valuations, which he felt he could not justify.

Part of the reason the boom became so extreme, he feels, is that fund managers felt they had to be part of it, even if they didn't fully believe the share price valuations were justified.

Tobacco and pharmaceuticals feature prominently in Mr Woodford's current portfolio, as well as many businesses in the early stages of development.

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